Bain Cap­i­tal Read­ies Bil­lion-$ Bet on Axis

US fund to ac­quire up to 5% via pref­er­en­tial al­lot­ment; sec­ondary share sale likely too

The Economic Times - - Front Page - 600,000 CR 116,122.28 27,402.32

In­du­lal PM & Ari­jit Bar­man

Mum­bai: Bain Cap­i­tal is in ad­vanced talks with Axis Bank to in­vest be­tween $750 mil­lion and $1 bil­lion (.`4,800-6,400 crore), in what could be one of the largest pri­vate eq­uity in­vest­ments in the In­dian bank­ing sec­tor.

In­dia’s third-big­gest pri­vate lender is in talks to raise money amidst wors­en­ing as­set qual­ity and reg­u­la­tory glare.

Bain’s pro­posed in­vest­ment will come as a pri­mary is­suance of shares through a pref­er­en­tial al­lot­ment that will al­low the PE Bal­ance Sheet Mar­ket Cap Gross NPAs (as on Sept 30) CR CR Pro­mot­ers (in­clud­ing SUUTI): Pub­lic:

30.35% 69.65%

fund to own up to 5% of Axis.

How­ever, some of the sources men­tioned above said there could be a sub­se­quent sec­ondary deal as well, through which Bain may grab another 5% stake from ex­ist­ing in­vestors. This may in­crease its ex­po­sure to nearly 10%, tak­ing the to­tal in­vest­ment to close to $1.5 bil­lion. The deal will have to be ap­proved by the Re­serve Bank of In­dia.

The trans­ac­tion will help Axis meet cap­i­tal re­quire­ments for the medium term as com­pe­ti­tion in­ten­si­fies in In­dian bank­ing. JPMor­gan is work­ing with Axis for the trans­ac­tion, which is ex­pected to be con­cluded within a few weeks, sources said.

“Bain has started metic­u­lous dili­gence on Axis’ books. The for­mal process is on and a deal is likely very soon,” said one of the sources men­tioned ear­lier.

Spokesper­sons for Axis Bank and Bain Cap­i­tal de­clined to com­ment.

The In­dian bank­ing sec­tor has, in re­cent times, seen Cana­dian pen­sion play­ers like Canada Pen­sion Plan In­vest­ment Board (CPPIB) and Caisse de dépôt et place­ment du Québec (CDPQ) buy into lenders such as Ko­tak Mahin­dra Bank. From ICICI Bank to Yes Bank, and from ING Vysya to Cen­tu­rion Bank of Pun­jab, pri­vate sec­tor lenders have al­ways at­tracted for­eign pri­vate cap­i­tal. Even Axis in its ear­lier avatar of UTI Bank had seen in­vest­ments from PE fund ChrysCap­i­tal.

Axis Bank’s cur­rent mar­ket cap stands at .₹ 1.16 lakh crore. The pro­mot­ers (Spec­i­fied Un­der­tak­ing of Unit Trust of In­dia, or SUUTI) own 30.35% while for­eign port­fo­lio in­vestors, in­clud­ing the Gov­ern­ment of Singapore In­vest­ment Corp and Abu Dhabi In­vest­ment Author­ity, hold 49.13%. For­eign in­vestors can au­to­mat­i­cally own up to 5% in a bank in In­dia, which with RBI ap­proval can go up to 10%.

“In­creased cor­po­rate NPLs (non­per­form­ing loans) drove the over­all NPL in­crease,” Moody’s said in its re­sult commentary on Axis Bank.

“Over­all, based on the trends in the quar­ter that ended Septem­ber 2017, the ex­tent of de­te­ri­o­ra­tion in the bank’s as­set qual­ity over the next12-18 months may be more than what we pre­vi­ously ex­pected. In ad­di­tion, com­pared to the other rated In­dian banks, we be­lieve that the bank has been lag­gard in recog­nis­ing its as­set qual­ity prob­lems, a credit neg­a­tive,” it added in the re­port dated Oc­to­ber 17. How­ever, Axis Bank CEO Shikha Sharma had told ET that the bad lo-

ans is­sue is short term and the lender is ex­pected to get into nor­mal credit cost cy­cle by next year.

“We have said there will be a few more quar­ters where we may see el­e­vated lev­els of stress. But go­ing into the next year, we be­lieve that we should be get­ting back to a nor­mal credit cost cy­cle,” Sharma told ET on Oc­to­ber 27. Sharma, whose term was re­cently ex­tended till 2021, said the recog­ni­tion cy­cle for much of the as­set qual­ity is more or less com­plete, and the res­o­lu­tion cy­cle is start­ing.

BAD LOAN TROU­BLE

Ac­cord­ing to Bloomberg es­ti­mates, Sharma, who was ap­pointed the bank’s CEO in 2009, has over­seen share­holder re­turns of 252%, less than the Bankex in­dex at 270%. Un­der her watch, $250 mil­lion of bad loans have swelled to more than $4 bil­lion, even as to­tal as­sets have merely tripled.

Axis Bank shares have fallen 4.6% in the past month be­cause of the bad loans is­sue, buck­ing the over­all trend in bank­ing shares. Most pub­lic sec­tor banks ral­lied af­ter the gov­ern­ment’s Rs 2.11 lakh crore re­cap­i­tal­i­sa­tion plan, with the Bank Nifty in­dex ris­ing 3.1%. On Mon­day, Axis Bank shares closed down 0.04% at Rs 484.3 on the BSE com­pared with a 0.33% gain in the Sen­sex.

At $17.6 bil­lion, PE in­vest­ments into the coun­try dur­ing the first nine months of the year have al­ready cre­ated a fresh record.

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