Union Mutual Fund explores merger with BOI AXA
Fund heads deny; such a move could lead to cost synergies, help meet net worth norms for both
State-sponsored fund houses Union Mutual Fund and BOI AXA Mutual Fund are exploring an option to merge. The talks are at a nascent stage.
The former is sponsored by Union Bank of India (UBI). The latter is a joint venture between Bank of India (BoI) and AXA Investment Managers, a part of the Parisheadquartered AXA Group.
While a merger might not lead to any meaningful addition in assets, it would mean cost synergies, economies of scale and wider distribution, said sources.
The net worth requirement as mandated by the Securities and Exchange Board of India (Sebi) will effectively halve after merger. At present, both are required to separately maintain a minimum net worth of ~50 crore. In 2014, Sebi had raised the minimum capital requirement for an asset management company (AMC) to ~50 crore from the earlier ~10 crore. It gave AMCs three years to comply. Experts say this is a challenge for houses making consistent losses.
Union MF and BOI AXA MF had average assets of ~3,056 crore and ~2,896 crore, respectively, for the quarter ended December 2016, putting them in the list of the bottom 15 in terms of the assets they manage, shows data from Value Research. Both are lossmaking, with net losses of ~1726 crore in the past five years.
An e-mail sent to BoI and UBI did not get a response. G Pradeepkumar, chief executive officer (CEO) at Union MF said he had no knowledge of talks for any merger. Sandeep Dasgupta, CEO of BOI AXA Investment Managers, said the fund has had no discussions with Union MF regarding any merger.
According to market participants, the dictat to focus on core operations and the surging strain on their balance sheets might compel public sector-sponsored MFs to reduce or sell their stakes in the business. In 2014, the Union finance ministry had asked public sector banks (PSBs) to review their exposure to non-core operations such as MFs and insurance. The move was aimed at conserving capital when stricter Basel-III norms were to be implemented.
Union MF’s Pradeepkumar had told Business Standard last year that there was no evidence of pressure on PSBs to divest. “Most stake sales or exits have happened in the private sector. MFs are an asset-light business and maintaining a net worth of ~50-100 crore will not be onerous for PSBs,” he had said in June.
UBI and B0I had net profit of ~104 crore and ~102 crore, respectively, for the quarter ended December 2016, shows data from the BS Research Bureau.
Other MFs sponsored by PSBs are IDBI MF, Baroda Pioneer MF, Principal MF, Canara Robeco MF and SBI MF. Except State Bank of India, most of the other statesponsored MFs figure low in the pecking order of assets under management, with a kitty of less than ~10,000 crore.
A perennial criticism facing such AMCs is that they have not been able to use their bank branches and personnel for distributing MF products.