Essel looks for investors to buy out MF biz as Seri deal hits roadblock

Essel Finance, the financial arm of the debt-laden Essel group, is looking for other potential investors to buy out its mutual fund (MF) business as talks with Srei have hit a wall.

According to people privy to the development, discussions between the parties have stalled owing to weak market conditions, and mismatch in valuations. The deal could still go through if Essel and Srei are able to come to a consensus, said the people. “We have made an offer that is commensurate with the market price. We are waiting to hear back from Essel,” said a Srei spokesperson. At the same time, people in the know said that Essel has initiated talks with other investors who have shown interest in entering the Rs 24-trillion MF industry, given that the exclusivity period with Srei has already lapsed.

Data sourced from the Association of Mutual Funds in India (Amfi) showed that in the June quarter, average assets managed by Essel MF stood at Rs 1,040 crore — a 26 per cent drop over the previous quarter.

Earlier, Essel Finance and Srei had entered into a non-binding term sheet for the sale of the former’s MF business. Rajiv Shastri had quit from his position as chief executive officer (CEO) of Essel MF, so that Srei could appoint a new CEO following closure of the deal.

Srei has, in the past, managed assets in an infrastructure debt fund that invests in infrastructure-related projects. While such funds typically cater to the niche segment of institutional investors, the deal will give Srei an opportunity to build a retail asset base as an MF player. 

The MF industry has, of late, seen some pick-up in deal activity. 

Last month, Canada-based financial services group Manulife announced a Rs 243 crore-deal to acquire 49 per cent stake in Mahindra MF.

The deal valued Mahindra MF at 10 per cent of its total assets. Earlier, Nippon Life agreed to pick up the 42.8 per cent stake held by Reliance Capital in the MF business. 

The deal was part of Anil Ambani group's asset monetisation plans. Essel group has been looking to improve its liquidity position by exiting some of its non-core businesses, as well as getting strategic investments into its core business, such as its flagship company Zee Entertainment. 

Promoters of Essel group have been in talks with multiple companies, including Sony Pictures and Comcast, to sell up to 50 per cent of their holding in Zee Entertainment.

Earlier this year, the Essel promoters had reached a standstill agreement on shares placed as collateral with lenders. 

As part of the deal, MFs and other lenders would not sell the pledged shares, and grant the promoters time till September to repay the debt.

Wait-and-watch mode

• Srei has made an offer to 
• Essel to sell its MF business
• Awaiting response from the latter on the offer
• Essel has initiated talks with other potential investors
• Sources have said the deal may still fructify if the two 
• reach an agreement