Japanese financial services giant Nippon will hike its stake in India’s top fund house Reliance Mutual Fund from 26 per cent to 49 per cent, while investing Rs 657 crore for the first tranche of nine per cent.
The first tranche values Reliance Capital Asset Management Company (RCAM), which runs Reliance MF, at Rs 7,300 crore, as per the deal announced today.
Nippon would eventually up its stake to 49 per cent in multiple tranches at prices to be determined on the basis of future prevailing assets and profitability of the company that are expected to be higher than the current levels.
Nippon already holds 26 per cent stake in RCAM, which it had acquired for Rs 1,450 crore in 2012 while valuing the company at Rs 5,600 crore at that time.
Nippon Life manages over $500 billion (Rs 30 lakh crore) in assets, highest in the world for any life insurer, while RCAM is part of Reliance Capital, the financial services arm of Anil Ambani-led Reliance Group.
RCAM is the largest asset manager in India, in terms of Asset Under Management, 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 will be increasing its stake in Reliance Capital Asset Management from the existing 26 per cent to 49 per cent in two or more tranches,” the two companies said in a joint statement.
“The Japanese company will be investing an aggregate value of Rs 657 crore ($108 million) to acquire an additional stake of 9 per cent in RCAM in the first tranche, to reach a 35 per cent stake.
“The transaction pegs RCAM’s valuation at Rs 7,300 crore ($1.2 billion), the highest valuation till date for any asset management company in India. This transaction is expected to be completed within the current financial year, subject to regulatory approvals,” the statement said.
Subsequently, Nippon Life Insurance will have an option to increase its stake further by an additional 14 per cent, to reach 49 per cent, in tranches, it added.
“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 CEO Sam Ghosh said.
Nippon Life also holds 26 per cent stake in Reliance Life Insurance Company, which it had bought for Rs 3,062 crore.
This deal was completed in October 2011 and it had valued the Indian insurer at over Rs 11,500 crore at that time.
Recently, Nippon gave indication that it was willing to hike its stake in Reliance Life as well once the regulations permit so.
The Indian government has now proposed to hike FDI cap in insurance sector from 26 per cent to 49 per cent. The proposal has been cleared by the Union Cabinet, but needs to be passed by Parliament.