Exim Bank turns equity investor

Plans to acquire stakes in medium-sized firms from various sectors.

India Inc has found a new private equity investor in Export-Import (Exim) Bank of India. The bank has finalised a plan to pick up stakes in medium-sized companies in the textiles, pharmaceutical, chemical, biotechnology, information technology and auto-component sectors.

Exim Bank has already identified the companies it can buy into and a slew of deals is likely to take place over the next few months. The total investment in these deals will be over Rs 100 crore.

"So far, we have only been financing domestic companies by extending loans as we were not allowed to pick up equity stakes in these companies. With the amendment of the Exim Bank of India Act this year, we are allowed to pick up equity stakes in companies," Exim Bank Executive Director S Sridhar told Business Standard.

Exim Bank will pick up stakes in small and medium companies that are not listed on the bourses.

"It is not easy for such mid-cap companies to raise capital at competitive rates from overseas markets. Our alliance with these companies will give them credibility and recognition. For us, it will be a new revenue stream," Sridhar said.

Exim Bank recently acquired a three per cent equity stake for Rs 5 crore in Bombay Rayon Fashions, an unlisted fabrics and garment maker. It bought one million shares of Bombay Rayon for Rs 50 a share at a premium of Rs 40, and will offload the stake in the market after the company's IPO.

"This is the first of such deals. We will have many more (of this kind of deals). We will follow the Securities and Exchange Board of India norms on the lock-in period for such acquistions," Sridhar said.

Some time back, Exim Bank wanted to convert itself into a commercial bank.But it could not do so as the finance ministry was not willing to accept the idea. Now, it is repositioning itself as a private equity investor.

It is planning to model itself on the International Finance Corporation (IFC), Washington, the investment arm of World Bank. IFC, too, picks up stakes in companies and sells them off at a premium at a later stage.

Typically, Exim Bank used to fund large projects that did not have access to other sources of lending. In such arrangements, Exim Bank always ended up taking a hit whenever the economy witnessed a downturn. With the new business model, Exim Bank will make money by offloading its stakes in the market.