L&T Finance vends mutual fund business to HSBC AMC for Rs 3,191 crore
By siliconindia | Friday, 24 December 2021, 04:34 Hrs
L&T Finance Holdings Ltd and HSBC Asset Management (India) (HSBC AMC) on Thursday joined a definitive agreement whereby the latter will buy 100% equity shares of L&T Investment Management Ltd for $425 million or about Rs 3,191 crore. The proposed acquisition is subject to regulatory approvals.
With assets under management (AUM) of Rs 803 billion and over 2.4 million active folios, L&T Mutual Fund is currently the 12th largest asset management company in India as of September 2021. On the other hand, HSBC AMC had an AUM of Rs 117 billion.
Commenting on the sale, Dinanath Dubhashi, managing director and chief executive officer of L&T Finance Holdings, stated: “Over the past 10 years, L&T Mutual Fund has garnered the trust of stakeholders across the spectrum, backed by steady and stable performance. When seen alongside the recent capital raise, it provides us with enough ammunition to increase the pace of retailization in our lending portfolio, which is one of our long-term goals."
The divestment of mutual fund business is in line with the strategic objective of L&T Finance Holdings of unlocking value from its subsidiaries to strengthen its balance sheet. While HSBC is looking at strategic growth plans in India.
In July 2010, L&T Financial Services gained access to the mutual fund industry in India after acquiring DBS Chola. Further, L&T Finance Ltd, a subsidiary of L&T Finance Holdings Ltd, had bought Rs 8,881 crore AUM of Fidelity’s Indian mutual fund business in 2012.
As per HSBC AMC, the proposed acquisition will be funded from existing resources and will have a minimal impact on HSBC’s Common Equity Tier 1 ratio. HSBC expects the acquisition to be immediately accretive to the earnings of the group upon completion and to achieve a return on investment of greater than 10% in the medium term.
Noel Quinn, HSBC’s Group CEO, stated: “This transaction enhances the strength of our business in India and reinforces our status as one of Asia’s leading wealth managers. Combining L&T Investment Management Ltd with our existing Indian asset management business gives us the scale, reach and capabilities to capture some of the 15-20% annual asset management market growth expected in India over the next five years."
The Indian mutual fund industry has seen a rapid pace of growth over the past few years. As per the data available with the Association of Mutual Funds in India (Amfi), the MF Industry’s AUM has grown from Rs 16.50 trillion as on 30 November 2016 to Rs 37.34 trillion as on 30 November 2021, showing more than two -fold increase in a span of five years.
Notably, last year, global financial services group Manulife had bought 49% stake in Mahindra & Mahindra Financial Services’ wholly-owned subsidiary Mahindra Asset Management Company for Rs 265 crore. AMC's average assets under management were around Rs 5,396 crore at the time of acquisition thus valuing it at about 10% of assets.