INDIA BUSINESS WORLD - JULY 1st - JULY 31st - 2008
R-ADAG BUYS CONTROL OF SAUDI FINANCE FIRM WITH 26% STAKE
OVERSEAS financial services business is the new target of Indian firms. R-ADAG group is picking a 26% stake with management control in a full-fledged financial services company in Saudi Arabia. The group is in the process of raising around 200 million Saudi Riyals (Rs 230 crore) from Middle East sovereign wealth funds and other institutional investors who will together hold 74% stake in the venture.
R-ADAG will be the single largest shareholder in the firm which has been christened Riyada Reliance Money. There will be a small group of around 7-8 investors, however, none of them will have more than 26% stake in the company.
Riyada Reliance Money will be engaged in various activities, including brokerage, depository services, investment advisory, asset management and investment banking. Incidentally, this would also mark the group’s entry into I-banking, an area where R-ADAG’s financial arm Reliance Capital is not present in India. The venture will be an extension of R-ADAG’s existing retail brokerage and financial products distribution business, which is under Reliance Money, a subsidiary of listed Reliance Capital.
Reliance Money director and CEO Sudip Bandyopadhyay said, “We are in negotiations with various firms to raise funds and have received positive response from some sovereign wealth funds.
There are a number of sovereign wealth funds in the Middle East, including UAE’s Abu Dhabi Investment Authority, which is believed to be the world’s biggest sovereign fund. Some of the other sovereign wealth funds in the region include Dubai-based Istithmar and Dubai International Capital besides Kuwait Investment Authority and Qatar Investment Authority. Incidentally, Saudi Arabia itself is reportedly in the process of launching a similar investment fund.
Some of these sovereign wealth funds’ investments have come under heavy scrutiny as they have picked equity stakes in large global firms, including some blue chip financial majors such as Citigroup, Standard Chartered, HSBC and Merrill Lynch.
Mr Bandyopadhyay explained RADAG’s decision to start a financial services venture in Saudi Arabia, “The entire Middle East and Saudi Arabia in particular is flush with funds in the wake of oil prices shooting to historical highs. Besides, Saudi Arabia has a large base of non-resident Indians estimated to be 2 million.”
In addition, there is a policy aspect. The equity brokerage market in Saudi Arabia, has opened up due to a policy change a year ago which bars banks from providing brokerage services in Saudi Arabia. This has left just about 20-odd brokerages in business, which are largely domestic Saudi Arabian firms. R-ADAG had also looked at the option of acquiring one of the existing firms but decided to set-up the business on its own.
R-ADAG also has a small presence in few other markets in the region, including UAE and Oman, and had recently struck a partnership in Hong Kong which marked its entry into the Chinese market. The basic objective to expand in these markets is to target a growing number of NRI population globally. Reliance Money, one of the largest broking houses in India, has over 2 million customers and 8,500 outlets across 4,250 locations.
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