Foreign Investment Promotion Board (FIPB), the nodal body monitoring foreign investment in the country, has rejected French banking and financial service giant BNP Paribas SA’s bid to buy Sharekhan from the Mumbai-based brokerage firm’s private equity owners.
BNP Paribas had struck a deal in July last year with Sharekhan’s existing private equity backers including The Rohatyn Group, Samara Capital and Baring PE Asia for the acquisition.
The Rohatyn Group, which became a large shareholder in Sharekhan after it acquired Citigroup Venture Capital International (CVCI), owns a little over 40% stake. Samara Capital holds around 30-35%, after factoring in convertibles like preference shares and debentures. The remaining stake is with Baring PE Asia, IDFC and top executives of the brokerage.
Interestingly, earlier a proposed deal between existing investors in the firm too faced a roadblock at FIPB. As first reported by VCCircle, Baring PE Asia was in talks to buy out IDFC’s stake in Sharekhan. But FIPB had nixed the proposed deal where IDFC planned to sell both its direct and indirectly held stake in the firm.
IDFC held compulsorily convertible debentures (CCDs) of Sharekhan besides convertible preference shares 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.
Email queries sent to BNP Paribas and Sharekhan on the development did not elicit any response.
Apart from BNP Paribas, Warburg Pincus was also in the race then to acquire a large stake in Sharekhan from The Rohatyn Group. Although the deal value was not publicly disclosed, separate media reports had said citing unnamed persons that BNP Paribas will be buying Sharekhan for Rs 2,200 crore.
Sharekhan (formerly known as SSKI Investor Services Pvt. Ltd) was set up in 1995 and launched its brand ‘Sharekhan’ 2000 to offer broking services predominantly to non-institutional clients. In 2005, the company changed its name to Sharekhan Ltd.
BNP Paribas already owns a large minority stake in financial services provider and brokerage firm Geojit BNP Paribas
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.
BNP Paribas, which has been present in India since 1860, already owns a large minority stake as a co-promoter of public listed Geojit BNP Paribas. Geojit BNP Paribas is a retail financial services company which also offers brokerage solutions in India with a growing presence in the Middle East.
Several stock brokerages had attracted PE funding during the last bull-run which ended in January 2008. Valuation of brokerages have crumbled since then. Still some like Carlyle went on to bet on the sector later (acquiring stake in India Infoline and Edelweiss) when the valuation was down.
In another deal in the brokerage space, Canadian investment giant Fairfax’s India focused investment arm, Fairfax India Holdings Corp (FIH) increased its stake in Carlyle-backed financial services company IIFL Holdings Ltd (formerly India Infoline) to 30.72% through an open offer. IIFL is into several businesses including stock brokerage.
In another development in the sector, SMC Global Securities Ltd had received the Securities and Exchange Board of India (SEBI)’s nod for an IPO last year. However, the clearance has expired. As first reported by VCCircle, it was mulling over a US listing.
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