INDIA BUSINESS WORLD - March 16th - March 31st - 2008
BARING PRIVATE EQUITY BUYS 12% IN SHAREKHAN FOR RS 240 CR
Baring Private Equity has pipped financial services giant Merrill Lynch to buy 12% stake in Mumbaibased brokerage company Sharekhan. The Rs 240-crore deal values Sharekhan at Rs 2,000 crore.
The transaction is through a mix of secondary sale by Sharekhan’s largest shareholder—Citigroup Venture Capital (CVC)—and additional infusion of funds into the company’s capital. It was earlier reported that Baring was among the group of investors in talks to pick a minority stake in Sharekhan. Earlier, Merrill Lynch was believed to have been the front-runner. Last year, CVC and IDFC had invested around Rs 650 crore to pick 85% stake in Sharekhan. Sharekhan was then valued at Rs 800 crore. The Baring deal translates into a valuation growth of over 150% in 10 months. CVC owns 75% in Sharekhan while IDFC holds 10%. The management and employees hold the remaining 15%.
CVC India country head Ajay Relan confirmed that Sharekhan has inducted new investors but declined to comment on valuations. Baring Private Equity India chief Rahul Bhasin could not be reached for comment and there was no response to an email sent to him.
Last year, CVC and IDFC together had bought 37% from Sharekhan promoter Shripal Morakhia and 48% from other shareholders like General Atlantic, Intel Capital and some funds advised by HSBC Private Equity India.
As reported earlier, CVC, part of banking major Citigroup, was said to be keen on diluting its stake in Sharekhan due to regulatory issues. A private equity firm holding substantial stake in an unlisted company would be classified as a promoter. If that company goes public, the PE firm’s shares would have a lock-in period, meaning it cannot exit in a hurry. This could be one reason why CVC intends to dilute its stake, though this could not be verified independently. A classification as a promoter also brings other aspects such as disclosure norms into the picture.
According to a source close to the deal, the latest deal involved additional capital infusion by existing shareholders like IDFC, which invested proportionately to maintain its 10% in Sharekhan, pursuant to Baring investing in the brokerage’s equity capital. However, CVC’s stake has now fallen to 63% from 75%.
Incidentally, Baring already has an exposure in the sector through JRG Securities. It had picked 44.8% in the Kochi-based brokerage firm for $35 million (Rs 140 crore) about a year ago. Financial services firms, especially those with brokerage business, have been commanding high valuations in the stock market. While many have got corrected substantially by 40-50% in the recent market crash, some are still valued in the billion-dollar-plus bracket.
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