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Lotus India AMC manages in excess of Rs50 billion ($1 billion) across 19 mutual fund schemes. It has raised around 90% of its assets under management through debt funds, while the balance is in equity funds. It began operations in India in August 2006 and currently operates out of 60 cities in the country.
No financial data for the takeover was released. Specialists suggest that the deal was struck at a price between 1% and 2% of AUM, which suggests a deal size of Rs500 million to Rs1 billion. This is reckoned to be a reasonable amount for a debt-oriented AMC. But some media commentators have speculated that the controlling shareholders may have agreed to provide guarantees for losses to Religare post-deal and that this amount could even be larger than the price at which the deal was transacted.
Lotus India AMC would not have been able to command a premium valuation because it has been plagued with heavy redemptions. Industry figures show that its AUM fell around 30% in one month alone from Rs79 billion at the end of September to around Rs54 billion at the end of October.
Lotus India AMC is a joint venture between Fullerton Fund Management Group and Sabre Capital. Around 25% of its equity was sold to employees earlier this year. Religare did not clarify whether all the shareholders would sell or whether the deal was struck with the controlling shareholders only.
Fullerton Fund Management was set up in 2003 as a wholly owned subsidiary of Singapore-based investment firm Temasek Holdings. Sabre Capital is a private equity firm spearheaded by Rana Talwar, the former group CEO of Standard Chartered Bank. Sabre's most successful investment was in 2003 when it took over Indian commercial bank Centurion Bank of Punjab. In February, leading Indian bank, HDFC Bank, acquired Centurion in an all-share deal which valued the target at Rs95 billion.
On October 30, Religare announced it would raise funds through a rights issue at a price of Rs355 per share, totalling Rs18 billion. Religare has been listed for less than a year since its initial public offering in 2007. Shareholders will be offered two shares for every three shares they own and the controlling shareholders will underwrite the issue and pick up any unsubscribed shares. Given that Religare was trading around Rs325 on the Bombay Stock Exchange on the day the rights issue was announced, and has continued to trade at that level, the rights issue is unlikely to be attractive to retail shareholders and is widely perceived as a means for the Singh family to increase their shareholding in Religare.
A right issue is a favoured technique in India for controlling shareholders to increase their stake in their firms. Pricing is not governed by regulations and the new shares are freely tradable.
ôThe objective of the proposed rights issue is to further add momentum to the multi-dimensional growth plans of the company,ö Religare wrote in its stock exchange filing.
In June, the Singh family struck a deal to sell its flagship company, Ranbaxy Laboratories, to JapanÆs Daiichi, which is estimated to have netted the Singhs in excess of Rs100 billion. At the time, the Singh family said it would use some of the proceeds to build its other businesses such as Fortis Healthcare, an operator of specialty hospitals, and Religare.
New European Union regulations being introduced in March will raise the bar for ESG reporting and could well hurt the appeal of energy- and carbon-intensive stocks.
Hurdles such as foreign exchange limitations still exist, but the new rules could help private equity fund managers and investors with ESG integration.
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By applying the ‘Investment Clock’ framework, investors can link factor behaviour across economic cycles in the US.