MUMBAI: IDFC is in talks with a clutch of private Indian lenders and bulge bracket PE funds to sell its asset management and stock broking units in a deal that could be worth up to Rs 6,000 crore, people familiar with the discussions said.

IDFC is in talks with IndusInd BankNSE -1.13 % and Yes Bank, and private equity giants such as Bain Capital and Warburg Pincus for the sale of its mutual fund business for about Rs 4,000-4,500 crore.

For IndusInd and Yes Bank, an entry into the asset management business is a big strategic move.
Separately, the firm is also negotiating with Yes Bank to sell the stock broking business — IDFC Securities —for another Rs 1,500-2,000 crore.

IDFC Mutual Fund, with more than Rs 70,000 crore of assets under management, is valued at around 6-8 per cent of its total assets, multiple sources close to the deal told ET. “The talks are gaining momentum. They have reached out to a couple of strategic as well as financial investors. This would be one of the largest AMC share sales as IDFC falls under one of the top 10 largest asset managers currently,” the source said.

‘Expansion Opportunity’

The transaction has come at a time when IDFC has already started merger process with Warburg Pincus-owned Capital First, a non-banking finance company. Both firms announced in January that IDFC Bank will acquire Capital First in a share-swap deal valued at about $1.5 billion.

“It makes sense for IDFC to sell all non-bank businesses before the ownership change happens in full. And such an inorganic acquisition helps private sector lenders like Yes Bank or IndusInd Bank grow to the next level,” said a senior banker from a private sector bank.

In November last year, ET had reported that IDFC was looking to sell its private equity business IDFC Alternatives — which has close to $2.6 billion assets under management — to Global Infrastructure Partners in a management buyout. “IDFC’s proposed sales of two entities have elicited interest from top fund houses and promising private banks, which find it an opportunity to expand into India,” said a top executive from a Mumbai-based large financial institution.

Bain and Warburg Pincus declined to comment, while IDFC spokesperson, who looks after mutual fund as securities businesses, declined to comment due to “silent period” before the announcement of IDFC’s quarterly earnings on April 27.

Yes Bank and IndusInd Bank did not reply to ET’s email queries.

“Private equity globally invests in the manager or AMC of mutual funds globally,” said Sandeep Parekh, founder of Finsec Law Advisors. “Indian law does not prohibit a private equity fund whether international or domestic from becoming a sponsor.” “However, Sebi will need to come out with a clarification on the investment on issues which are unique to a fund investing,” he said.

STRATEGIC MOVE

For IndusInd and Yes Bank, an entry into the asset management business is a big strategic move. Both the banks have been trying to buy assets and enter into a fullfledged spectrum of financial services business. IndusInd bought ABN Amro’s India business and non-banking finance firm, Bharat Financial Inclusion last year. “Getting into the asset management business with an AUM of more than Rs 70,000 crore will be a big step for these strategic guys,” said one of the sources mentioned above.

Big-ticket buyout funds such as Bain Capital and Warburg Pincus have been aggressive buyers in the Indian financial services industry. A consortium led by Bain bought a 10 per cent stake in Axis BankNSE 0.68 %, while Warburg had exposure in Kotak Mahindra Bank and M&M Financial Services.

Nearly one-and-a-half year ago, BNP ParibasNSE -2.71 % SA completed the acquisition of retail brokerage firm Sharekhan after receiving approvals from all relevant regulatory authorities. In July 2015, BNP announced to acquire the domestic brokerage for about Rs 2.2 crore.

“Any institution can own domestic fund house if it complies with the Sebi guidelines for mutual funds,” said Dhirendra Kumar, CEO at Value Research, a Delhi-based mutual fund analytics company. Private equity players, marked as global asset managers, could well be financial sponsors of mutual fund houses in India.”

Kumar cited Mirae Asset and Franklin Templeton mutual fund houses where foreigners fully own them being compliant with Sebi guidelines.

“The move should be positive for IDFC as they are unlocking value, selling non-core assets and concentrating more on the lending side of the business. The deal will also make the buyer as one of the biggest asset managers in the country as IDFC manages a significant sum. However, the transaction, which will be unique in that sense, will have to get clearances from regulatory authorities,” said Rajesh Gupta, partner, SNG & Partners, a Mumbai-based law firm.