Anil Ambani's Reliance Capital looks beyond Nippon Life for AMC stake

Global biggies explore higher offer than Nippon

Anil Ambani-controlled Reliance Capital (RCap) has begun talks with global investors to sell its 42.88 per cent stake in Reliance Nippon Life Asset Management (RNAM), which manages the mutual fund (MF) business.

The investors it is talking to include the Abu Dhabi Investment Authority (ADIA), Mubadala, Singapore-based Temasek, the Ontario Teachers’ Pension Plan, and private equity funds Blackstone and The Carlyle Group. ADIA and Blackstone declined to comment; the others did not reply to emails.

The move comes hard on the heels of Reliance asking its joint venture (JV) partner Nippon Life Insurance to put an offer on the table for buying it out as part of their JV agreement. While an offer is expected by a week, say sources, Reliance has started to talk to other potential investors in case it chooses to reject the Nippon offer and sell its stake to a third-party investor, provided the latter offers a higher value than Nippon.

Under the agreement between the two companies, sources say that while Nippon has the “first right of offer”, it does not have a window to match the “highest offer” by a competing investor. Reliance has only committed itself to saying that it cannot sell its stake below the Nippon offer.

The investors who are talking to Reliance are evaluating the opportunity of a counter offer. A spokesperson for the Anil Ambani group declined to comment on the issue.  

According to sources, RNAM has ruled out mergers with other domestic MF companies, primarily owing to the lengthy procedures for clearance, which can take six to nine months.

The move to sell the stake in the MF business stems from the Anil Ambani group’s efforts to reduce its debt exposure, pegged at Rs 18,000 crore in RCap. At a market capitalisation of around Rs 12,503 crore for RNAM, the value of the RCap stake is pegged at around Rs 5,376 crore. However, analysts say the potential buyer will also pay a premium for control over the company.

Reliance’s asset management company is the fifth-largest in the country in what is a highly competitive market, with over 40 players jostling to attract customers.

It has MF assets under management of over Rs 2.36 trillion (according to the data up to December 2018) behind HDFC, ICICI Prudential MF, SBI MF, and Aditya Birla Sun Life MF.

However, the company saw a decline in its consolidated profits for the quarter ended December 2018, falling by 17 per cent to Rs 109 crore. Analysts say the interest from global players is understandable as there are very few opportunities open to them to enter the domestic MF market and acquire scale and control of a profitable business quickly. They say that the other big players in the game such as ICICI, HDFC, or Birla are clearly not going to hand over control of their business.

Global companies have recently shown interest in picking up controlling stakes in the MF business. For instance, just a few months ago, DHFL announced it would be selling 50 per cent of its stake in DHFL Pramerica to its JV partner and would then exit the business. IDFC too, which was looking at selling its MF business but eventually shelved the plan, had attracted interest from Blackstone, Avendus and others, according to reports.