Indiabulls Housing Finance Ltd (IHFL) is picking up a 39.8 per cent stake in the London-based OakNorth Bank for $100 million (Rs 660 crore), the first major share purchase in a UK bank by an Indian mortgage lender.
IHFL, which last year failed to get a banking licence in India, said on Thursday the deal will make it the bank's single-largest shareholder.
Separately, IHFL promoter and chairman Sameer Gehlaut will purchase up to 10 per cent more in OakNorth for $25 million (Rs 166 crore).
IHFL is one of India's largest non-deposit-taking finance companies. The investment will help IHFL to build deposit-taking capability, it said.
Gehlaut was the highest paid executive in the non-banking finance and diversified financial services industry in the country last year. Earlier this year he injected Rs 538 crore ($84.6 million then) in group firm Indiabulls Real Estate Ltd through a preferential allotment.
OakNorth was founded by Indian-origin serial investor Rishi Khosla and Joel Perlman. It began operations in May this year as a digital-focused lender. It offers short-term working capital loans and term loans to small and medium businesses, and savings products to retail customers.
Lending to SMEs in Britain is dominated by property-backed loans. OakNorth offers loans that are secured against multiple collateral types. In effect, it is trying to solve the same problem that SMEs face in India. In India, non-banking finance companies such as Indiabulls try to fill the gap left by commercial banks. IHFL would be looking at a similar play in the UK.
The startup bank counts Sushil Wadhwani, a former member of the Bank of England's Monetary Policy Committee who runs his own asset management firm, as a shareholder.
OakNorth began operations in May and offers loans mainly to small and medium businesses
Wadhwani had founded quantitative macro investment firm Wadhwani Asset Management after moving on from Bank of England in 2002. Previously, he had worked as director of research, head of systems trading and partner at the Tudor Group, and director of equity strategy at Goldman Sachs International.
What it means for Indiabulls Housing
IHFL was one of about two dozen applicantsfor a retail banking licence. Last year, the Reserve Bank of India picked only two - IDFC and Bandhan - to start new private banks.
With OakNorth, IHFL gets a play in the banking sector, albeit in an overseas market. It might be looking to leverage the success of this investment to make a case for a future bid to get into the banking business in India.
In the meantime, it would be looking to replicate the success of its Indian lending business in the UK.
IHFL said this investment will have no impact on its dividend policy guidance of paying 50 per cent of profits as dividends. The company expects to keep growing 20 per cent to 25 per cent annually across all financial parameters, as in the past six years, it said.
Khosla's several shades
This is not the first transaction between Khosla and IHFL. He had made a private investment into the group's original flagship firm that went public in early 2008. The firm later demerged its units into separate listed firms. At the time he was an investment advisor to steel magnate Lakshmi Mittal, who was an early backer of Indiabulls group.
A postgraduate in finance and accounting from the London School of Economics, Khosla started his career with ABN Amro and later worked for GE Capital's PE unit. A trustee to New Philanthropy Capital, Khosla has also worked as an advisor to VC fund Epiphany Ventures.
In 2002, he co-founded Copal Partners, a firm that provided outsourced research services for investment banks. Global rating agency Moody's bought a majority stake in Copal in 2011. Two years later, Moody's acquired Helion Venture Partners-backed Amba Investment Services, routing the deal through Copal which was then renamed Copal Amba.
Last year, Moody's completed the buyout of Copal Amba.