Bain Capital buys 10.2% in L&T Finance

Pays Rs 1,370 cr in separate deals, including part of promoter stake

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Bain Capital, the global private equity (PE) giant, acquired a 10.2 per cent stake in L&T Finance Holdings in two separate deals on Monday.

Under the first deal, the non-banking-finance company issued 95.3 million fresh shares and warrants to the PE firm at Rs 74 a share. This transforms into a 5.3 per cent stake in the company on a fully diluted basis.

In a separate deal, the NBFC’s promoter, construction giant Larsen & Toubro, sold an additional 85.2 million shares amounting to 4.95 per cent stake in the company to Bain Capital in a block deal at Rs 70 a share.

This has enabled Bain to acquire a 10.3 per cent stake in L&T Finance for about Rs 1,370 crore, providing it a board of directors’ seat. Both transactions were done on a premium to Friday closing price of the stock at Rs 68.6 a share on the BSE.

The deals value L&T Finance at Rs 13,700 crore.

“We expect our balance sheet size to grow at a compounded annual rate of 25-30  per cent in the next three years,” says N Sivaraman, president & wholetime director, L&T Finance Holdings. “The equity infusion from Bain will help us meet the capital requirement to support this growth.”

L&T Finance has market leading positions in its core segments of renewables, roads and rural lending. Its four business verticals are infrastructure finance, retail finance, asset management and insurance distribution.  In FY15, the company had book sizes of Rs 23,000 crore and Rs 25,000 crore, respectively, for retail finance and infrastructure finance. Under its mutual fund arm, the company manages assets worth Rs 23,000 crore. The stock was down by  2.5 per cent to Rs 66.85 a share on Monday, after the announcement of both transactions.

“The total purchase price is about 1.8 times the net worth or book value,” said an analyst tracking the company. “Financial services has been one of the biggest attractions for PE investors in India, providing a proxy to India's gross domestic product growth. This deal seems to be in line to that.”

For Bain Capital, this is the first investment in a financial service business in India. It has so far invested $1 billion in about half a dozen companies in India, including Hero MotoCorp and Genpact. Its experience in India has been mixed, with investment in Lilliput Kidswear getting into trouble. However, it made a profitable partial exit from Hero MotoCorp and is expecting a substantial upside in Genpact. The company declined to comment for this report.