MFs eye M&A over new net worth norms

Principal Pnb Asset Management Company, which manages Rs 4,753-crore of assets, has announced additional fund raising from its promoters. With this, Principal Pnb joins numerous other fund houses whose promoters have increased their capital commitments to meet net worth requirements.

However, many of Principal Pnb's peers are also looking at the possibility of mergers and acquisitions, according to the Securities and Exchange Board of India (Sebi). The minutes of the latest Sebi board meeting mentions 'two AMCs (asset management companies) have submitted their merger proposals with other AMCs', without naming the two entities. While this might well refer to the Birla-ING deal and the Kotak Mahindra-PineBridge deals, it does not end there.

For, the minutes note 'there are indications that a few other AMCs are contemplating mergers and other options'. The move comes in the wake of new regulatory requirements, announced in February. Sebi had then decided to raise the minimum net worth of mutual funds from Rs 10 crore to Rs 50 crore.

INDUSTRY IN FLUX

• Sebi decided to raise minimum net worth for AMC fivefold in February
• Industry has been looking at various options since then
• Two AMCs have submitted their merger proposals with other AMCs
• There are ‘indications a few other AMCs’ are also looking at M&A, says Sebi board meeting minutes
• Around 3 to 4 AMCs have indicated they are in the process of infusing capital
• Principal PnB latest to announce fund infusion on Monday

In the case of Principal Pnb, "the increase in net worth was effected by issuing equity shares aggregating to Rs 65 crore on rights basis to the existing shareholders," said a spokesperson in response to a query from Business Standard. The asset manager now has a net worth of Rs 77 crore.

Ned Burmeister, senior vice-president and chief operating officer at Principal International, said the infusion of capital was in keeping with the firm's expansion plans.

"This is in line with our ambitious plans for expansion and consolidation in our chosen emerging economies. We firmly believe in India's long-term growth story and the potential of its mutual fund industry and are confident that Principal's brand, along with its global investment expertise will eventually make us the most preferred asset manager in the area of goal and advisory voluntary savings, including providing for retirement."

Some other AMCs are likely to follow with capital infusions. "Three to four AMCs have indicated they are in the process of infusing capital and meeting the net worth requirements within the next couple of months," said the minutes of the board meeting.

Notably, 14 AMCs had not met the net worth requirements as of the board meeting on November 19.

The past year has seen a number of transactions in the mutual fund space. Birla Sun Life Mutual Fund announced that it would acquire the assets of ING Investment Management India in May. Kotak Mahindra Asset Management Company, India's ninth biggest fund house in terms of assets, acquired PineBridge Mutual Fund in September. Also, Dewan Housing Finance Corporation has picked up a 50 per cent stake in Pramerica Asset Managers.

All the transactions came after the Sebi decision to increase net worth in February.