The Indian banking regulator’s refusal to give its nod to UBS AG for buying the Indian mutual fund business of Standard Chartered Bank has put the employees of the fund in a bind.
As part of the deal, which was signed almost a year ago, the employees of the Standard Chartered fund business were promised hefty bonuses on the condition they remain with the firm for at least two years after it gets regulatory approvals for the sale. The promise was made by the management of Standard Chartered Asset Ma-nagement Co. Pvt. Ltd and it is not clear whether the retention bonus were to come from UBS.
Since the deal is likely dead, the management of Standard Chartered may have to review its promise, say some industry observers.
Mint reported on 25 December, citing people familiar with the Reserve Bank of India, that the regulator hasn’t approved the deal because it hadn’t received clarifications over possible money laundering through UBS by Hasan Ali Khan, a Pune-based stud farm owner who was being probed by the Indian income-tax department. UBS hasn’t responded to several emails from Mint and Khan declined to comment.
It is unclear if UBS will formally drop the acquisition plan and whether Standard Chartered will now look for another buyer.
Naval Bir Kumar, managing director of Standard Chartered AMC, said none of AMC’s employees have left since January when the deal was first announced. He maintained none of his employees are planning to leave.
Kumar, however, declined to discuss the troubled sale. An email sent to fund’s external communications office didn’t elicit a response.
“Employees were promised a retention package, which was good enough to make them stay with the company so far,” says a person associated with the mutual fund industry, but who didn’t wish to be quoted.
Indeed, “ever since the deal was announced, we tried to hire a few employees from Standard Chartered AMC. But they were not even willing to give interviews,” says a senior marketing executive from a rival firm who didn’t want to be identified.
Besides hefty bonuses, coming into the UBS fold would have opened more opportunities for Standard Chartered AMC employees. Both the companies had agreed to enter into a strategic alliance for distribution of funds and wealth management products in Asia, West Asia and Africa. Globally, UBS has a strong presence in the wealth management business.
Retaining employees will be critical for AMC if it wants to put the funds business up for sale again, which means employees might yet get their bonuses.
UBS agreed to pay Rs467 crore for all of AMC, or around 4% of the total assets of Rs12,635 crore held by Standard Chartered AMC as on 31 December 2006.
Mutual fund companies are valued on the basis of assets they have and a higher proportion of equity assets has a positive influence on valuation. Standard Chartered Bank could not command a higher valuation as its equity assets were 20% of its total assets.
Today, it manages Rs14,295 crore of assets and 22% of these assets are equities. It is the 13th largest player in the industry. Indian mutual fund industry, consisting of 32 players, managed Rs5.37 trillion of assets as on 30 November.
The fund house has strength in debt fund management as few of its debt funds have got top performance rating by Value Research, a New Delhi-based fund research firm. In this year, one of its equity funds has given the second highest return in the category of diversified funds.
JPMorgan Asset Management (India) Pvt. Ltd, AIG Global Asset Management Co. (India) Pvt. Ltd and Mirae Asset Global Investment Management (India) Pvt. Ltd have entered the mutual fund business this year. At least three more international players have applied to stock market regulator for licences to run asset management firms.
Foreign international players are also picking up stakes in the local mutual fund firms. Recently, a US-based fund Eton Park agreed to pay Rs501 crore for a 5% stake in Reliance Capital Asset Management, the largest mutual fund player with an asset base of Rs77,765 crore as on 30 November. The deal values the firm at 13% of its total assets.
This deal has set a new benchmark for the valuation of mutual fund companies. So, Standard Chartered AMC may not find it difficult to find another suitor and even a better price, industry sources say.