L&T Finance Holdings Ltd and HSBC Asset Management (India) Private Ltd (HSBC AMC) signed a definitive agreement on Thursday under which the latter will acquire 100% of the equity shares of L&T Investment Management Ltd for $425 million, or about â‚¹3,191 crore. The proposed acquisition is subject to regulatory approvals.
With assets under management (AUM) of 803 billion and over 2.4 million active folios, the L&T mutual fund is currently the second largest asset management company in India as of September 2021. On the other hand, HSBC AMC had an AUM of â‚¹117 billion.
Commenting on the sale, Dinanath Dubhashi, Managing Director and CEO of L&T Finance Holdings, said: “Over the past 10 years, the L&T Collaborative Fund has garnered the trust of stakeholders across the spectrum, backed by consistent and stable performance. When seen alongside the recent capital raise, it provides us with enough ammunition to increase the retail pace of our loan portfolio, which is one of our long-term goals.”
Divestment of the mutual fund business is in line with L&T Finance Holdings' strategic goal of unlocking value from its subsidiaries to strengthen its balance sheet. While HSBC is analyzing India's strategic growth plans.
In July 2010, L&T Financial Services gained access to the mutual fund industry in India after acquiring DBS Chola. In addition, L&T Finance Ltd, a subsidiary of L&T Finance Holdings Ltd, acquired â‚¹8,881 crore AUM of Fidelity’s Indian mutual fund business in 2012.
According to HSBC AMC, the proposed acquisition will be funded with existing resources and will have little impact on HSBC's Class 1 common stock ratio. HSBC expects the acquisition to increase Group profits upon completion and generate a return on investment of over 10% over the medium term.
Noel Quinn, Group CEO of HSBC, said: “This transaction further strengthens our business in India and cements our position as one of the leading wealth managers in Asia. Combining L&T Investment Management Ltd with our existing asset management business in India gives us the scale, scope and capabilities to benefit from the 15-20% annual growth of the projected asset management market in India over the next five years.”
The Indian mutual fund industry has experienced rapid pace in recent years. According to data available with the Association of Mutual Funds of India (Amfi), the MF Industry’s AUM has grown from Rs 16.50 trillion as of 30 November 2016 to â‚¹37.34 trillion as of 30 November 2021, showing more than two -fold increase in a span of five years.
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