Ratings firm CRISIL Ltd, majority owned by S&P Global Inc, has acquired state-run Canara Bank’s 8.9% stake in smaller rival CARE Ratings Ltd for Rs 435 crore ($67.5 million).
“This stake purchase is an investment in the excellent long-term prospects of the credit rating sector in the country,” CRISIL said in a statement. The prospects are driven by significant demand for capital investments and infrastructure financing in India, it added.
CRISIL bought CARE Ratings’ stake at Rs 1,659.79 apiece. Shares of CARE jumped as much as 16.2% on the BSE to Rs 1,660 apiece before paring the gains to end at Rs 1,596.85.
CARE, previously known as Credit Analysis and Research Ltd, began operations in 1993. It posted standalone revenue of Rs 280.48 crore in 2016-17, up from Rs 264.84 crore the year before.
CARE is the only ratings firm among India’s top four that is not owned by global credit ratings giants Standard & Poor’s, Fitch and Moody’s. Its single-biggest shareholder is state-run Life Insurance Corporation of India. It also counts Singapore sovereign wealth fund GIC, Kuwait Investment Authority and Norwegian sovereign fund Government Pension Fund Global among its shareholders.
CRISIL is two-thirds owned by S&P. The global ratings firm first acquired a 9.7% stake in CRISIL in 1997. It became the Indian firm’s majority owner in 2005 and ramped up its stake to around 67% in 2013.
CRISIL’s stake purchase in CARE is its biggest deal since its acquisition of UK-based analytics firm Coalition Development Systems India Pvt. Ltd in June 2012 for roughly Rs 250 crore in cash. The acquisition marked CRISIL’s entry into proprietary research outside India.
In September 2010, CRISIL had bought out Chicago-headquartered Pipal Research Corporation, a knowledge process outsourcing firm, from Firstsource Solutions for $12.75 million deal.
Canara Bank’s asset sales
The share sale in CARE Ratings is part of the lender’s plan to monetise non-core assets, Suresh Pai, treasury head at Canara Bank, said in a interview with CNBC-TV18 television channel. The bank is looking to monetise other non-core assets, Pai added.
In March, the Bengaluru-based bank had sold a 13.45% stake in housing finance arm Can Fin Homes Ltd to an affiliate of GIC Pte Ltd, Singapore’s sovereign wealth fund, for Rs 753.77 crore. Canara Bank continues to hold a 30% stake in Can Fin Homes.
Besides, Canara Bank is looking to divest its stake in Canbank Factors Ltd, its factoring services arm, VCCircle reported in April.
Media reports have cited managing director Rakesh Sharma as saying that the sale of non-core assets would help Canara Bank strengthen its equity base. But he has ruled out plans to divest stake in the bank’s mutual fund and insurance businesses.
Canara Bank is not the only state-run lender selling non-core assets. In February, IDBI Bank said it would sell some non-core investments. In March, Bank of India sold its entire stake in credit bureau TransUnion Cibil to US-based TransUnion International for Rs 191 crore. These stake sales come as many state-run banks are grappling with losses and rising bad loans.
Canara Bank posted a net loss of Rs 2,812 crore in the year through March 2016. It has returned to the black this fiscal year and posted a three-fold rise in net profit to about Rs 322 crore in the October-December quarter of 2016. However, the bank’s gross bad loans in the quarter rose to 9.97% of total advances from 5.84% a year earlier.