Blackstone ups India ante with L&T MF bid3 min read . Updated: 20 Oct 2020, 05:39 AM IST
Deal may be closed by 15 November if both sides agree on valuation
Blackstone Group Inc. is in advanced talks to buy L&T Asset Management Co. as the private equity giant looks to double down on its investments in India, its strongest performer, amid depressed valuations because of the coronavirus outbreak, two people with direct knowledge of the matter said.
If the deal goes through, it will mark the first buyout of an Indian fund manager by a foreign company that doesn’t handle public funds. L&T AMC, with 39 mutual fund schemes, has assets of around ₹63,057 crore as of end-September.
“Sebi (Securities and Exchange Board of India) expressed its comfort with the proposal only in the second week of September. Blackstone had started discussions in March. If the valuation is agreed upon by both L&T and Blackstone, the deal should get closed before 15 November," said one of the two people cited above.
As the matter had regulatory implications, it took Sebi almost six months to clear the proposal, he said.
Blackstone has been aggressively pursuing opportunities in India’s financial services space as part of its strategy to benefit from the growth of lending opportunities and investment culture in the country.
The buyout firm has invested more than $15 billion in India till date, across private equity ($6.9 billion), real estate ($7.8 billion) and tactical opportunities ($400 million).
Blackstone lost out to Hong Kong-based private equity firm PAG in the race to buy Edelweiss’ wealth management business in early September, but the New York-based buyout firm is continuing to pursue its plan to invest in India’s financial services space.
In 2019-20, Blackstone invested a total of $2.5 billion in India, including the purchase of Aadhar Housing Finance for around $470 million.
If the L&T AMC deal is completed, it will add mutual funds to Blackstone’s India buyout portfolio.
For the L&T Mutual Fund deal, Sebi’s approval was crucial for Blackstone to acquire the entire business. According to existing norms, any entity with 40% or more stake is classified as a sponsor in an asset management company, and such a sponsor needs to comply with the eligibility criteria stipulated by Sebi. The regulatory restrictions prevent private equity companies from acquiring more than 39.99% in an asset manager.
“Blackstone is currently a PE firm but has a track record of managing public investments in its previous avatar. Also, Blackstone manages real estate investment trusts (Reits), which is related to market volatility and public money. So, Sebi should allow Blackstone to be a 100% owner of an AMC," said a person close to Blackstone.
But the issue before Sebi was that Blackstone is registered with Sebi as a PE fund under alternative investment fund (AIF) rules. According to Sebi’s definition of AIFs, Blackstone is not classified as a company managing redeemable public deposits, which is why Sebi was initially reluctant to allow Blackstone to be a sponsor of a mutual fund.
On 8 June, Mint reported that apart from Axis Mutual Fund and IIFL Mutual Fund, at least three investment managers—Blackstone Group, ChrysCapital and Avendus Capital Pvt. Ltd—had evinced interest in buying a stake in L&T Mutual Fund.
Citigroup and JP Morgan are advising on the sale of L&T Mutual Fund, and the deal is likely to be announced within a month, said the second person.
In April 2012, Fidelity Mutual Fund sold its assets to L&T Finance Ltd for ₹550 crore, valuing the latter at 6.2% of its assets under management.
A Blackstone spokesperson declined to comment on the development.