Dewan Housing Finance Corporation Ltd (DHFL) said on Tuesday it will sell its entire stake in the mutual fund business to its US joint venture partner.
The Mumbai-based deposit-taking housing finance company has signed a binding term sheet to sell a 50% stake in DHFL Pramerica Asset Managers Pvt. Ltd to New Jersey-based Pramerica Financial, Inc. DHFL owns the stake in the four-year-old equal joint venture directly and through wholly-owned subsidiary DHFL Advisory & Investments Pvt. Ltd.
“This is a strategic call by DHFL to focus more on our core business. We firmly believe that this move is in the best interest of all parties and will have a positive outcome for all stakeholders,” said DHFL chairman and managing director Kapil Wadhawan.
As part of the agreement, Pramerica will also acquire DHFL’s 50% stake in DHFL Pramerica Trustees Pvt. Ltd. The deal value was not made public.
The transaction is subject to signing of definitive documentation and receiving various approvals.
The deal will not change the asset manager’s scope of business, Pramerica said in a separate statement.
Pramerica and DHFL had formed the joint venture in 2014 and immediately expanded its business through the acquisition of Deutsche Asset Management (India) Pvt. Ltd.
Pramerica ranks among the world’s top 10 investment managers and has more than $1 trillion in assets under management.
DHFL Pramerica Mutual Fund ranks 16th among Indian asset managers with Rs 22,699.97 crore in assets under management as of September, showed data from industry body Association of Mutual Funds in India (AMFI).
Shares of DHFL closed on the BSE at Rs 213.90 apiece on Tuesday, down 1.84% from the previous close. BSE’s benchmark Sensex had recovered intraday losses to end up 0.21%.
Wadhawan Global Capital Pvt. Ltd, which owns 38% of DHFL and is the controlling lever for the group's financial businesses, is also looking to sell stake in its affordable housing financier which is backed by International Finance Corporation (IFC).
According to media reports, private equity giant KKR & Co is one of the contenders to acquire controlling stake in Aadhar Housing Finance Ltd, which is simultaneously exploring an option to go public via an IPO.
DHFL’s decision to sell its non-core business coincides with similar moves by several banks and non-banking financial companies (NBFCs) looking to sell non-core assets to boost their capital requirements.
Significantly, market sentiment weakened amid fears as many NBFCs came under tighter scrutiny over concerns related to a liquidity crunch in the shadow banking space.
Concerns arose after Infrastructure Leasing & Financial Services (IL&FS) defaulted on its debt in September, sparking a sell-off in shares of NBFCs and mortgage lenders.
DHFL’s stock has lost nearly 70% of its value since mid-September.
Mutual fund industry
India saw record mutual fund inflows in 2017 that pushed total industry mutual fund assets to Rs 7.7 lakh crore as against Rs 4.7 lakh crore in 2016, showed data from industry group Association of Mutual Funds in India.
However, inflows have fizzled a tad this year owing to volatility in the stock market.
India’s mutual fund space is highly competitive with nearly four dozen firms operating at present.
Non-banking finance company IDFC Ltd is also looking to sell its mutual fund business as part of efforts to shed non-core assets.
In 2016, Edelweiss Asset Management Ltd agreed to acquire JP Morgan’s Indian mutual fund business in a deal that marked the exit of yet another foreign firm in an intensely competitive sector.
JP Morgan joined Japan’s Nomura, Germany’s Deutsche Bank and US financial services giants Goldman Sachs and Morgan Stanley in exiting a sector that still has 44 players, according to AMFI.
State-owned IDBI Bank Ltd is also reportedly scouting for a buyer for its mutual fund business.