On Thursday L&T Finance Holdings Ltd and HSBC Asset Management (India) Private Ltd (HSBC AMC) entered into a conclusive agreement by which the latter will obtain 100% shares in the equity of L&T Investment Management Ltd for nearly $425 million or almost Rs. 3,191 crores. The acquisition that is being proposed is subject to regulative approvals.
With assets under management (AUM) or almost Rs 803 billion and more than 2.4 million ongoing folios, L&T Mutual Fund is now the 12th largest asset management company in the nation as of September 2021. Whereas on the other hand, HSBC AMC had an AUM of ₹117 billion.
Dinanath Dubhashi who is the managing director and chief executive officer of L&T Finance Holdings, while commenting on the sale said: “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 proportion with the strategic objective of L&T Finance Holdings of unlocking value from its subsidiaries to reinforce its balance sheet. While HSBC is seeking strategic growth plans in India.
L&T Financial Services gained access to the mutual fund industry in India in July 2010 after obtaining DBS Chola. L&T Finance Ltd which is a subsidiary of L&T Finance Holdings Ltd further had obtained Rs 8,881 crore in 2012 with AUM of Fidelity’s Indian mutual fund business.
According to HSBC AMC, the asked acquisition shall be funded from resources that are existing and will have a minimal effect on HSBC’s Common Equity Tier 1 ratio. HSBC even expects the acquisition to be accretive soon to the earnings of the group upon completion and to get a return on investment of more than 10% in the medium term.
Noel Quinn who is the HSBC 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 fast pace of growth over the last few years. As per the data that is available with the Association of Mutual Funds in India (Amfi), the MF Industry’s AUM has increased from ₹16.50 trillion as of 30th November 2016 to ₹37.34 trillion as of 30th November 2021, presenting a more than two-fold increase in a period of 5 years.
To be noted that last year, global financial services group Manulife had obtained a 49% stake in Mahindra & Mahindra Financial Services certainly owned the subsidiary Mahindra Asset Management Company for ₹265 crores. AMC’s average assets under management were near around ₹5,396 crores at the time of acquisition thus valuing it up to about 10% of assets.