Vikram Pandit, the former chief executive of the banking giant Citigroup, is making a big-bang entry into the financial services sector by entering into a wide-ranging deal with JM Financial. The pact between Pandit and ace deal-maker Nimesh Kamapani-led JM Financial involves making an entry into the Indian banking sector and the two will make an application to the Reserve Bank of India for a licence.
The deal also involves expanding the lending operations of JM Financial and raising capital for the non-banking finance company of the group, as well as setting up a distressed asset fund.
VCCircle was the first to report today about Vikram Pandit’s stake buy in JM Financial.
In the first leg of the transaction, Pandit, along with former Old Lane Hedge Fund partner Hari Aiyar (former chairman and CEO of Old Lane India), will pick up stake in JM Financial through the issue of warrants on a preferential basis. JM Financial will issue 23.3 million warrants to Pandit, Hari Aiyar and Aparna Murthy Aiyar at Rs 19.5 per unit, amounting to Rs 45.4 crore.
This is expected to amount to a total 3 per cent stake in JM Financial, with Pandit and the Aiyars each taking 1.5 per cent of the post-issue capital. JM Financial also counts San Francisco-based hedge fund Valiant Capital (3.47 per cent) and Wipro’s billionaire promoter Azim Premji (2.91 per cent) among its shareholders.
Shares of JM Financial soared to Rs 23.55 per unit, up 16.01 per cent on the BSE by the end of the day.
While the application for the banking licence will be made by the JM Financial group, Pandit will be the non-executive chairman of the proposed bank. Pandit and Hari Aiyar will also have the right to buy shares of the new bank.
RBI issued the norms for new banking licences in February 2013. After a span of around 10 years, the central bank is set to issue fresh banking licence. It had last issued banking licences to Yes Bank and Kotak Mahindra Bank back in 2003-04.
The deal also includes plans to expand the lending and financing business of JM Financial by raising $100 million from a pool of capital raised by Pandit. He will also become the non-executive chairman of JM Financial Products, a non-deposit accepting non-banking finance company. According to JM Financial’s December quarter results, the NBFC has book size of Rs 2,846 crore.
The two will also form a distressed asset fund with the initial target capitalisation of $100 million. JM Financial also has an asset reconstruction business.
“I continue to believe in the long-term growth prospects of India. I have known Nimesh and JM Financial for over two decades and believe that given the opportunity, JM Financial can provide the banking and financial services that the country needs,” said Pandit in a statement.
This is not the first venture between Pandit and Kampani’s JM Financial, though. In August 2006, Pandit’s hedge fund Old Lane Partners, LP, was the lead investor and co-sponsor to JM Financial India Fund, a corporate private equity fund floated by JM Financial.
JM Financial also had a JV till 2007 for investment banking and securities business with Morgan Stanley, where Pandit worked till 2005 – a period of more than two decades.
Along with some Morgan Stanley colleagues, Pandit set up his hedge fund Old Lane LLC, which was acquired by Citi in 2007 for $800 million while it netted $165 million for Pandit. He initiallly took the role of chairman and CEO of Citi Alternative Investments unit and later led Citi’s institutional clients group. Pandit was appointed CEO of Citigroup in December 2007 as the financial crisis started.
His resignation from the Citigroup in October last year had come as a surprise just as the bank’s financials started improving.
However, the entry of Vikram Pandit into the Indian financial services sector rings a bell, as Rana Talwar, former group CEO of Standard Chartered Bank, made a similar move over a decade ago.
Talwar set up Sabre Capital in 2001, which bought the management control of the then ailing Centurion Bank in 2003, along with other investors, and was responsible for turning it around. Centurion Bank was later merged with Bank of Punjab and was sold to HDFC in 2008. Sabre Capital got 103 per cent internal rate of return on its investment. Several other co-investors with Talwar, such as India Value Fund, ICICI Venture and ChrysCapital, also made good returns on the deal.
It remains to be seen if private equity funds participate in Pandit’s banking venture although the sector has been high on their radar.
The deal could also mean the next stage of evolution for Kampani and his JM Financial, where the promoter group owns over 69 per cent stake. One of the three K’s (other two are Hemendra Kothari and Uday Kotak) of India deal street, Kampani’s firm has been one of top merchent bankers and was an advisor to the recently concluded United Spirits-Diageo deal.
Interestingly, both the other K’s have moved beyond the deal street now. Kothari sold DSP to Merrill Lynch and now heads the asset management firm DSP Blackrock besides making personal investments like ING Vysya Life Insurance. Kotak got the banking licence in 2004 and has transformed his financial services company to one of the largest private sector banks in India.
(Edited by Sanghamitra Mandal)