Federal Bank board approves raising ₹6,196 crore via preferential issue of warrants to Blackstone entity

Global investor Blackstone is set to buy nearly 10% stake in Kerala-based Federal Bank, becoming the latest foreign entity to covet a slice of a domestic bank. The acquisition for close to ₹6,200 crore will also mark Blackstone's latest bet on India's financial sector, where it has made multiple investments over the years.

The private bank's board on Friday okayed issuing warrants to a Blackstone affiliate, to be converted later to a 9.99% stake. Once the Blackstone entity's shareholding reaches 5%, it will get to nominate one non-executive director to the bank's board.

Federal Bank said its board has approved a preferential issue of 273 million warrants worth ₹6,196.5 crore to Blackstone affiliate Asia II Topco XIII Pte. Ltd. Each warrant can be converted to one equity share at a price of ₹227 each. The Blackstone affiliate will pay 25% of the issue price at the time of warrant subscription, and the rest 75% during conversion to shares.

Shares of Federal Bank closed unchanged on BSE at ₹227.4.

The acquisition is the latest India bet by Blackstone, the biggest global investor in the country managing assets of $50 billion. Its previous investments in India’s financial sector include the acquisition of Aadhar Housing Finance Ltd 2019, and a ₹150 crore investment in Fino Ltd in July 2011. It has also invested in the South City Mall in Kolkata, Express Towers in Mumbai, and Kolte-Patil Developers Ltd.

Banking deals

India’s banking segment has witnessed renewed interest in recent times, on the back of its long-term growth prospects and economic resilience. Analysts are upbeat about the prospects of more such deals. “Definitely, more smaller and mid-sized banks are up (for such deals). In fact, any organization which requires a confidence capital desperately needs to do this in our view,” Suresh Ganapathy, managing director and head of financial services research, Macquarie Capital said in a note to clients after the Federal Bank stake sale was announced.

Ganapathy said that as far as large banks are concerned, considering their size and systemic importance, the Reserve Bank of India (RBI) will tread a more cautious path when it comes to approving change of control.

“The smaller ones and mid-sized ones (and in some cases beleaguered, bankrupt ones) need more capital, better tech, better governance, better controls, and better expertise and knowledge to stay compete with the larger ones and RBI understands this,” he said.

Last week, Emirates NDB Bank said it has entered into an agreement to acquire a 60% stake in RBL Bank for ₹26,850 crore, marking the largest foreign direct investment in India’s banking sector. With the banking regulator likely to allow such transactions going forward, a floodgate of more such transactions will open up, with more global players looking to have an Indian play.

Earlier this month, Abu Dhabi-based investor Avenir Investment RSC, an affiliate of International Holding Co., agreed to pick a 43.46% stake in Sammaan Capital (formerly Indiabulls Capital) for $1 billion.

Before that, following RBI approval, Japanese lender Sumitomo Mitsui Banking Corp. completed the acquisition of a 20% stake in Yes Bank in September. SMBC has also signed an agreement with CA Basque Investments, a company affiliated with The Carlyle Group Inc., to acquire an additional 4.2% equity stake in Yes Bank, taking the total stake to 24.2%. In August, RBI approved SMBC’s proposal to buy up to 24.99% in Yes Bank.

Japan’s MUFG is also reportedly in talks to acquire a controlling stake in Avendus Capital, a homegrown financial services firm, valuing it at around $800-900 million.

As per a recent UBS report, India's financial services industry profits are projected to grow from ₹6.1 trillion in FY25 to ₹11.3 trillion by FY30, at a 13% compound annual growth rate (CAGR). Non-banking financial companies (NBFCs) are expected to outperform banks with 16% growth versus 11%.