January 3, 2015
Reliance Capital, Anil Ambani’s financial services company, got a new investor. Japan’s Sumitomo Mitsui Trust Bank paid Rs.371 crores for 2.77% stake.
Reliance Capital is a non-banking finance company that engages in lending, insurance and asset management. Reliance Capital CEO, Sam Gosh terms the investment by Sumitomo Mitsui as “Initial and Strategic” and that the Japanese bank would have a lock-in period of one year.
According to statement by the company, Sumitomo paid a little over 11% premium price at Rs.530 per share to the stock price on Wednesday.
This deal puts the valuation of Reliance Capital close to Rs.13,400 crores against its market cap of Rs.12,216 crores, based on the closing stock price on Wednesday.
Sumitomo Mitsui Trust Bank is the fourth largest in Japan by market capitalisation and corporate loans and Japan’s largest financial institution managing assets of $682 billion with assets under custody of $1.8 trillion as of September.
Sam Gosh explained that the deal is also strategic because Reliance Capital intends to open a new bank in India and is interested in having Sumitomo as a strategic partner, as and when RBI’s policies permit the formation of the same.
Reliance Capital’s application was not approved by RBI during its latest round of bank licenses. While RBI has invited applications for differentiated bank licences (payment banks and small finance banks), Reliance Capital has not shown any interest and it is skeptical if it would be interested in such niche where the scope is limited.
Reliance Capital has shifted its focus to its core business and is in the process of selling its minority investments in order to lower its debt, as a part of which, Reliance Group has recently sold its Big Cinemas Multiplex business to South Indian based Carnival Group. Reliance Capital is also planning to sell its 16% stake in Yatra.com for an estimated Rs.500 crores and is in touch with few international investors.
According to Reliance Capital, Sumitomo Mitsui Trust bank and Reliance Capital will collaboratively provide solutions for their clients including in the area of M&A opportunities in India and Japan and will assist each other in distributing their respective financial products through their network.
“Sumitomo Mitsui Trust Bank and Reliance Capital will collaborate in providing solutions for their clients, including in the area of M&A [mergers and acquisitions] opportunities in India and Japan, and will assist each other in distribution of their respective financial products through their networks,” the statement said.
Another Japanese financial services major Nippon Life recently entered into an agreement with Reliance Capital Asset Management, which is a part of Reliance Capital, to raise its stake in the company to 49 per cent from 26 per cent in two or more tranches over the next two years. Nippon Life also has a 26 per cent stake in the life insurance arm of Reliance Capital, Reliance Life.