Bank of India set to buy 51% in Bharti AXA MF

Public sector Bank of India (BoI) is set to re-enter the mutual fund business. It is close to buying a 51 per cent stake in Bharti AXA Investment Managers.

Senior bank officials confirmed this. “We are in an advanced stage of negotiations with Bharti Axa for picking up a majority stake in their asset management company (AMC),” said an official.

Sandeep Dasgupta, chief executive, Bharti Axa Investment Managers, refused comment. The company has been looking for a partner for some time.

BoI sources said talks were continuing on the terms and conditions, especially pricing. “Things have more or less fallen in place. We are just awaiting the final contours of the deal. The deal is likely to be closed by the end of this month,” said the official.

Sources said the talks were prolonged because besides the valuation, the bank was also working on the fresh capital infusion that the company might need after the acquisition.

BoI says it works on a universal banking model and so wants to provide as many financial products under one roof as possible. “The AMC business stands to gain from our branch network,” said the official.

Bharti Axa has been looking to rope in an Indian bank as a partner for some time. In its annual report for 2009-10, the company said it was scouting for a joint venture partner, preferably a bank, to increase its distribution reach.

“In a large country like India, it is not feasible or desirable to rely solely on proprietary distribution infrastructure,” the report said. The company posted a loss of Rs 42.14 crore in 2009-10, down from Rs 45.6 crore in 2008-09.

BoI had started a mutual fund business in 1990. However, it exited in 2004. Of the six schemes launched by the fund, four were redeemed. The other two were sold to Taurus Mutual Fund in 2004 after giving an exit option to investors.

While the valuation is not known, mutual fund industry sources say that given the 60 per cent debt component in Bharti Axa’s portfolio, the value of the deal is likely to be two-three per cent of the assets under management. In December-end, Bharti Axa was managing Rs 412 crore.

In 2009, L&T Finance bought DBS Chola AMC for Rs 45 crore, valuing the company at 1.56 per cent of the assets under management.

Last year, the Daiwa Group bought Shinsei’s mutual fund arm for Rs 48.6 crore, or 11 per cent of the assets under management. However, industry sources said the high valuation was because Daiwa acquired the licence to immediately do business in India.

Explaining the rationale for the deal, the BoI official said, “While the Indian mutual fund industry is facing challenges in terms of inflows and financial health, we look at this as a temporary phase.”

Recently, a number of top executives quit Bharti Axa. They included equity head Prateek Agrawal. Human resources head Debraj Sinha, fixed-income head Sujoy Kumar Das and country head, business development, Vikaas M Sachdeva, have also left the company in recent months.

There are many mutual funds either fully or partly owned by banks, along with foreign partners. These are Baroda Pioneer Mutual Fund, Canara Robeco Mutual Fund, ICICI Prudential Mutual Fund, Principal Mutual Fund and SBI Mutual Fund, Axis Mutual Fund and IDBI Mutual Fund.

Another public sector lender, Union Bank of India. has floated an asset management company in partnership with the KBC Group of Belgium.

Source: http://www.business-standard.com/india/news/bankindia-set-to-buy-51-in-bharti-axa-mf/427389/