Blackstone looks to buyout L&T Mutual Fund, expand India financial services play3 min read . Updated: 19 Oct 2020, 06:52 PM IST
- The deal, if it goes through, will mark the first buyout of an Indian AMC by a foreign non-mutual fund company
- L&T AMC, with 39 MF schemes, has assets worth around ₹63,057 cr as of the September quarter
MUMBAI : Private equity giant Blackstone is in advanced talks with engineering behemoth Larsen and Toubro Ltd.’s financial subsidiary L&T Finance to completely buyout the mutual fund business of L&T Asset Management Company, This, as the New York-based PE firm is aggressively looking to enhance its India play, especially in the financial services space, said two people with direct knowledge of the matter, on the condition of anonymity.
The deal, if it goes through, will mark the first buyout of an Indian AMC by a foreign non-mutual fund company. L&T AMC, with 39 MF schemes, has assets worth around ₹63,057.2 crore as of the September quarter.
“Sebi expressed its comfort with the proposal only in the second week of September. Blackstone had started the discussion in March. If the valuation is agreed upon by both L&T and Blackstone, the deal should get closed before 15 November," said the first person.
Blackstone had sought the Securities and Exchange Board of India’s (Sebi) permission to buy a majority stake in L&T Mutual fund but since the matter had regulatory complications it took almost six months for the capital market regulator to give its green signal for the proposal, he said.
Blackstone has been aggressively pursuing opportunities in India’s BFSI space as a part of its larger strategy to gain from the growth prospects of lending businesses and investment culture among India’s large but underpenetrated population.
Blackstone has invested over $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 PAG in the race to buy Edelweiss’ wealth management business in early September but the PE firm is holding steady on its strategy to strengthen its foothold in India’s financial services space.
In 2019-20, Blackstone private equity invested $2.5 billion in India, while executing India’s largest buyout in financial services – Aadhar Housing Finance for around $470 million.
If the L&T AMC deal fructifies, it will add mutual fund business 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. As per the extant norms, any entity with 40% or more stake is classified as a sponsor in an AMC and such a sponsor needs to comply with the eligibility criteria stipulated by Sebi. The regulatory restrictions prevent any PE player from acquiring more than 39.99% in an AMC business.
“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 Trust (REIT), 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 AIF rules. As per Sebi’s definition of AIFs, Blackstone is not classified as a company managing redeemable public deposits, which is why Sebi was initially conservative to allow Blackstone to be an AMC sponsor.
On 8 June, Mint reported that apart from Axis mutual fund and IIFL Mutual Fund at least three investment management firms including Blackstone Group Llp. and ChrysCapital Llp and Avendus Capital Pvt. Ltd. have evinced interest to buy a minority 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 had sold its assets to L&T Finance Ltd for Rs.550 crore, valuing the latter at 6.2% of its AUM.
A Blackstone spokesperson declined to comment on the development.