Mumbai: Singapore’s sovereign wealth fund GIC Pte. Ltd and Canada Pension Plan Investment Board (CPPIB) are in talks to co-invest with private equity firm Bain Capital to acquire a 10% stake in Axis Bank Ltd.

According to multiple people aware of the development, it will be one of the largest private equity investments in the Indian banking sector. The three entities will invest about $1.9-2 billion to acquire the 10% stake, one of the people said on condition of anonymity.

While investors will get half of the 10% stake in the form of preferential shares, the remaining 5% will be acquired from institutional investors through a secondary transaction, said the first person.

According to the first person, Bain Capital and other investors will do a deal similar to Bain’s 10% stake purchase in L&T Finance Holdings Ltd in 2015. As part of that deal, Bain Capital had acquired about 5.27% through preferential shares and warrants, and an additional 4.95% stake from parent Larsen & Toubro Ltd through an open market transaction.

GIC and CPPIB are so-called limited partners in Bain Capital. Investors in private equity and venture capital funds are called limited partners. Bain has struck similar partnerships in its earlier bets such as Genpact Ltd and Hero MotoCorp Ltd.

Spokespersons for Axis Bank, Bain Capital and GIC declined to comment. An email sent to CPPIB did not elicit any response. GIC is already an investor in Axis Bank. CPPIB holds a 6% stake in another private bank, Kotak Mahindra Bank Ltd.

Bain Capital is in advanced talks to invest between $750 million and $1 billion (Rs4,800-6,400 crore) in Axis Bank, The Economic Times reported on Tuesday.

Axis has been keen to bring in a “marquee long-term investor to boost confidence in the market and reputation in the wake of the recent drop in its asset quality," according to another person cited above, who also spoke on condition of anonymity.

The lender had several options for the fundraising but having an investor who is a big global name shores up the confidence of other potential investors, whether global or local, he said.

Axis Bank has been in talks with several potential investors including a global multinational bank and another large global private equity fund; however the deal did not fructify, this person said.

The people cited above also said that Bain is expected to fund the investment through both equity and debt and is in talks with potential lenders.

“The fundraising will ensure that Axis Bank has enough capital to make provisions against large write-offs in their loan portfolio," said Suresh Ganpathi, an analyst at Macquarie Research Equity.

Ganpathi, however, added that the proposed capital infusion should be viewed as infusion of “growth capital and not (a move) to boost long-term investor confidence in the stock".

In the quarter ended 30 September, Axis Bank reported a net profit of Rs432.38 crore, compared with Rs319.08 crore a year ago and Rs1,305.60 crore a quarter ago. The bank’s gross non-performing assets (NPAs) surged to Rs27,402.32 crore as of 30 September from Rs16,378.65 crore a year ago and Rs22,030.87 crore in the June quarter.

The rise in NPAs came after the Reserve Bank pointed to under-reporting of Rs5,632 crore worth of toxic assets after conducting its annual risk-based supervision exercise.

While bad loan provisions are set to increase in the coming quarters, the bank will also have to prepare itself to take a bigger haircut on the accounts that have been referred to the National Company Law Tribunal (NCLT) for bankruptcy proceedings under the Insolvency and Bankruptcy Code. The private sector lender has close to Rs7,041 crore of exposure to eight of the 12 accounts referred to the NCLT.

On Tuesday, Axis Bank shares rose 8%, or Rs38.75, to Rs523.05 on reports of a stake sale to Bain Capital investment. The benchmark Sensex fell 0.16%, or 53.03 points, to end the day at 33,213.13 points.

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