Nippon buying 9% more in Reliance Capital Asset Management for $108M

Japan’s largest life insurer Nippon Life Insurance Company has decided to raise its stake holding in Reliance Capital Asset Management (RCAM) to 49 per cent from the current 26 per cent in two or more tranches, according to a press release.

RCAM is part of the public-listed Reliance Capital, the flagship financial services company under Anil Ambani-led Reliance Group. The Japanese insurer already owns 26 per cent stake in RCAM and Reliance Life Insurance Company for which it invested $290 million and $680 million in 2012 and 2011, respectively.

In the first tranche, Nippon Life has agreed to invest Rs 657 crore ($108 million) to acquire an additional stake of 9 per cent in RCAM to take its holding to 35 per cent. The transaction pegs Reliance Capital Asset Management’s valuation at Rs 7,300 crore ($1.2 billion).

Subsequently, the Japanese firm will have an option to raise the stake further by an additional 14 per cent, to reach 49 per cent, in tranches.

“We welcome Nippon’s decision to further strengthen this partnership and acquire an additional stake in our asset management company. We strongly believe their expanded role in the company will accelerate our growth, reach and performance,” Reliance Capital's chief executive officer Sam Ghosh said in the statement.

This transaction is expected to be completed within the current financial year, subject to receipt of regulatory approvals.

“Our partnership with Reliance Group is an exemplary example of successful collaboration between two big corporations and countries. We look forward to strengthening this relationship and using the collective experience of the two corporations to the advantage of the two global economies”, said Yoshinobu Tsutsui, president, Nippon Life Insurance.

RCAM is the largest asset manager in India managing Rs 2,18,338 crore ($36 billion) as on September 30, 2014, across mutual funds, pension funds, managed accounts and offshore funds.

Nippon Life is the biggest private life insurer in Asia and Japan and seventh-largest life insurer in the world. The company manages nearly $500 billion in assets, amongst the largest total assets in the world for any life insurer.

The latest deal between Nippon and Reliance is an extension of their existing partnership in the financial services domain. Nippon had recently struck a deal to acquire 26 per cent in Reliance Life Insurance Co Ltd for Rs 3,062 crore ($680 million), valuing it at approximately Rs 11,500 crore ($2.6 billion). Thereafter, the partners had said that they intended to expand the scope of their existing business partnership to other financial services, such as asset management.

Reliance Capital has interests in asset management and mutual funds, life & general insurance, commercial finance, equities & commodities broking, investment banking, wealth management services, distribution of financial products, exchanges, private equity, asset reconstruction, proprietary investments and other activities in the financial services space.

Reliance Capital Ltd scrip was up over 4 per cent and was quoting at Rs 501.65 a share on the BSE in mid-day trade on Wednesday in a strong Mumbai market.

RCAM valuation

The new deal values RCAM at Rs 7,300 crore ($1.2 billion) or 3.3 per cent of the assets under management (AUM) of Rs 2,18,338 crore ($36 billion). This is just over half of its valuation when Nippon first invested in the firm around three years ago.

In 2012, Nippon had valued RCAM at Rs 5,600 crore ($1.1 billion) or 6 per cent of AUM worth Rs 93,148 crore ($19 billion) as of September 30, 2011, across mutual funds, managed accounts and hedge funds.

Both of these mark a big climb-down from the valuation of around Rs 10,000 crore, set by global investment firm Eton Park when it invested Rs 500 crore to acquire 5 per cent stake in Reliance Capital Asset Management just weeks before the stock markets crashed worldwide because of the sub-prime crisis in the West around seven years ago.

Since the latest transaction is expected through a fresh issue, Eton Park’s holding will shrink from 3.75 per cent to 3.28 per cent, valued at Rs 240 crore or less than half its investment in late 2007.

To be fair, even in the latest deal, Reliance has managed to strike a transaction at the upper end of the valuation range, compared to the most recent deal in the asset management space.

Last month Dewan Housing Finance Corporation Ltd said it is acquiring 50 per cent in US-based Prudential Financial Inc's Indian mutual fund business in the country for Rs 24.49 crore ($4 million). For the quarter ended September 30, it had AUM of Rs 2,060.21 crore, which valued the deal at 2.42 per cent of its AUM, the lower end of the valuation of mutual funds in the country.

In another deal Kotak Mahindra Asset Management Company Ltd (KMAMC) executed a definitive agreement to acquire the domestic schemes of PineBridge Mutual Fund (PBI MF). The deal value was not disclosed.

(Edited by Joby Puthuparampil Johnson)

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