FIPB rejects Baring PE Asia’s proposal to buy IDFC’s stake in Sharekhan

Foreign Investment Promotion Board (FIPB), the nodal body monitoring foreign investment in the country, has nixed a proposed buyout of stake held by IDFC Ltd in Mumbai-based brokerage firm Sharekhan Ltd by Baring Private Equity Asia.

As first reported by VCCircle, Baring PE Asia was in an advance stage of discussions with financial services company IDFC to buy its stake in Sharekhan.

IDFC held 3.43 million compulsorily convertible debentures (CCDs) of face value Rs 145.35 each and 567,601 CCDs of face value Rs 264.27 each of Sharekhan, as of March 31, 2014. It also owned 23.75 million convertible preference shares with face value of Rs 10 each of Human Value Developers Pvt Ltd.

Human Value Developers is a private firm promoted by three top executives of Sharekhan: Tarun Shah, Jaideep Arora and Shankar Vailaya. They had bought over the stake held by previous promoters Morakhias in 2007 and hence Human Value Developers is a stakeholder in the firm.

Both Sharekhan and Human Value Developers sought FIPB's approval for the transfer of CCDs and CCPs of their companies held by IDFC and to Baring PE Asia.

In an email response, Baring PE Asia's spokesperson declined to comment while a separate email sent to IDFC remained unanswered.

Warburg Pincus is separately leading the race to acquire over 40 per cent stake held by emerging markets-focused investment firm The Rohatyn Group in Sharekhan.

The Rohatyn Group became the single largest shareholder of Sharekhan as it acquired Citi Venture Capital International (CVCI) in 2013.

Sharekhan (formerly known as SSKI Investor Services Pvt. Ltd.) was incorporated in 1995 and launched its brand 'Sharekhan' in the year 2000 to offer broking services predominantly to non-institutional clients. In 2005 the company changed its name to Sharekhan Limited.

The firm was originally promoted by Shripal S. Morakhia and Shreyas S. Morakhia. In 2000 it raised funding from private investors HSBC Private Equity, Intel Capital and Carlyle. In April 2006, General Atlantic invested in the company through subscribing to equity and participatory convertible non-cumulative preference shares besides purchasing the equity holding of Carlyle (held through First Carlyle Ventures Mauritius).

In 2007 Morakhias sold their stake to Human Value Developers thereby ceasing to be a promoter of the company. At the same time CVCI, then the private equity arm of Citigroup, Samara Capital and IDFC subscribed to CCDs issued by Sharekhan at an aggregate investment of Rs 200 crore. The investors also purchased the stake held by General Atlantic, HSBC Private Equity and Intel Capital Corporation.

In February 2008, Baring PE Asia entered the firm and subscribed to fresh CCDs along with some of the existing investors. Baring PE Asia had picked 12 per cent equity stake in Sharekhan for Rs 240 crore through a mix of stake purchase from CVCI and addition of fresh capital. The deal valued Sharekhan at around Rs 2,000 crore then.

The Rohatyn Group currently owns a little over 40 per cent stake with Samara Capital holding around 30-35 per cent, after factoring in convertibles like preference shares and debentures. Rest is with Baring PE Asia, IDFC and others.

Meanwhile, FIPB has also also rejected few other proposals by PE funds including one by Piramal's realty fund unit and one by Reliance AIF.

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