Private-sector lender Federal Bank on Friday announced that New York-based Blackstone will invest ₹6,196.51 crore in the bank through its affiliate Asia II Topco XIII Pte Ltd via a preferential issue on a private placement basis. The investment will make the private equity firm the largest shareholder in the Kochi-based bank.
The deal adds to a flurry of foreign investments in India’s banking sector. Industry experts attribute this trend to India’s strong long-term growth outlook and the Reserve Bank of India’s (RBI) and the government’s increasingly accommodative stance on foreign investments in the sector.
Under the Blackstone arrangement, the bank will issue up to 272.97 million warrants, each convertible into one fully paid-up equity share of face value ₹2, at a price of ₹227 per share (including a premium of ₹225).
Following the conversion of the warrants, Blackstone — one of the world’s largest alternative asset management firms — will hold a 9.99 per cent stake in the bank, subject to regulatory and shareholder approvals. The warrants will have a tenure of 18 months from the date of allotment and may be exercised in one or more tranches.
The investor will pay 25 per cent of the issue price at the time of subscription, with the balance 75 per cent payable upon conversion into equity shares.
Any unexercised warrants at the end of the tenure will lapse, and the amount paid towards them will be forfeited.
The bank’s board has also approved a special right for Blackstone to nominate one retiring non-executive director to the board, upon the exercise of all warrants and provided it continues to hold at least 5 per cent of the paid-up share capital of the bank.
Shares of the bank closed flat at ₹227.40 on the BSE on Friday.
Federal Bank does not have a promoter, and all its shares are publicly held. The bank has called an extraordinary general meeting of shareholders on November 19 via video conferencing to seek approval for the preferential issue and the grant of the board nomination right. The record date for e-voting has been fixed as November 12.
Last week, Emirates NBD announced an investment of $3 billion for a 60 per cent stake in RBL Bank, the largest foreign investment in India’s private banking space. Earlier this year, Japan’s SMBC acquired a 24 per cent stake in Yes Bank, while Warburg Pincus and Abu Dhabi Investment Authority together invested $877 million in IDFC FIRST Bank.
Suresh Ganapathy, managing director and head of financial services research at Macquarie Capital, said smaller and mid-sized banks need more capital, better technology, stronger governance, tighter controls, and greater expertise and knowledge to stay competitive with the larger ones.
“The RBI understands this. At the same time, we also need foreign capital, which is more patient and long-term in nature. Since voting rights are capped at 26 per cent, and the RBI is insisting on a wholly owned subsidiary structure to ensure stronger regulatory powers and legal controls, the necessary safeguards and checks are in place. This ensures that it is not a fly-by-night operator taking a stake, and the risks are well managed,” Ganapathy said.
On whether more such deals are likely, he added: “Definitely, smaller and mid-sized banks are up. In fact, any organisation that requires confidence capital desperately needs to do this.”
For large and systemically important banks, the RBI will tread a more cautious path when it comes to acceding control, he added.
Blackstone buys majority stake in Ace Insurance Brokers
US-based alternative asset management firm Blackstone has acquired a majority stake in ACE Insurance Brokers at a total enterprise valuation of $425 million.
ACE Insurance Brokers, registered with the Insurance Regulatory and Development Authority of India for over 24 years, provides expertise across major lines of business such as property, transit insurance, liabilities, credit and political risks, surety, miscellaneous, and employee benefits, along with specialized areas including aviation, marine hull, and protection and Indemnity Insurance.
A Blackstone spokesperson declined to comment.
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