Private equity major Carlyle’s complete exit from leading mortgage lender HDFC has given a strong signal to PE investors in banks and financial services that the exit route has opened up, as the market touches its highest level in the past two years.
The 23 per cent growth, which India's benchmark stock market index has witnessed this year, has pushed PE investors to exit the listed portfolio in financial services space with decent returns. The financial services sector in India, which had been hit by various regulatory hurdles, made a come back in 2012.
Through the 3.7 per cent stake sell-off in HDFC, Carlyle Group LP has raised $841 million. Through the complete exit, Carlyle has doubled its five-year-old investment in HDFC. In May 2007, Carlyle Asia Partners, Carlyle’s buyout fund, had invested about Rs 2,638 crore in HDFC, acquiring 15.25 million shares at Rs 1,730 a share. In August 2010, the shares were split 1:5.
| TOP EXITS IN FINANCIAL SERVICES* | ||
| Buyer | Target | Deal value ($mn) |
| Temasek, GIC Special | ICICI Bank | 460.0 |
| Temasek Holdings | ICICI Bank | 298.0 |
| Warburg Pincus India | Kotak Mahindra Bank | 272.4 |
| Carlyle Asia Partners II | HDFC | 270.4 |
| Warburg Pincus | Kotak Mahindra Bank | 171.5 |
| *Between 2009 and 2012 YTD Source: VCCEdge | ||
K Ramakrishnan, executive director, Spark Capital Advisors said, “The outlook for financial services, especially banking and NBFCs look positive. If the PEs hold the stake for five-six years and there is a good growth in share prices, this is the right time for exits.” For private equity players, most of these investments are for balancing the portfolios and through the present exits they can earn a decent returns,” he added.
Since the beginning of 2012, global PE majors had started exiting their listed portfolio in phases. In February, Carlyle, which held 5.22 per stake in HDFC, sold about 1.3 per cent stake and recorded a return of Rs 1,354 crore.
In a similar deal, Malaysia’s state investment arm, Khazanah Nasional, had sold its 4.17 per cent stake in YES Bank to a clutch of unknown institutional investors, through a $110-million deal in March 2012. Khazanah made about two times their original investment value, by selling off its seven-year old investment.
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In 2012, banks and diversified financial services space has witnessed 10 open market exits worth $1.19 billion, the largest size of exits since 2007 while year 2011 saw only four open market exits worth $300 million.
According to Avinash Gupta, head — financial advisory, Deloitte India, these exits will help PEs to return a portion of their investments as most of their investments are stuck in the unlisted portfolios. He said, “Besides taking advantage out of the market boom and getting descent returns, PE investors can breath a sigh of relief as no exits are happening at the unlisted space.”
Similarly, Warburg Pincus’ bet on Kotak Mahindra Bank gave it a hefty return. Making a complete exit from its eight-year investment, Warburg sold the remaining 3.6 per cent stake in Kotak Mahindra for Rs 1,404 crore (Rs 530 per share) in March this year. In February, it had sold 2.4 per cent stake (Rs 490 per share) in the bank for Rs 857 crore. Warburg had bought 2.75 per cent stake in the bank in 2004 at Rs 230 per share. In 2005, it bought an additional two per cent stake at Rs 385 a share.
Last month, Chrys Capital offloaded four per cent stake in Shriram Group’s retail financing arm, Shriram City Union, for Rs 172 crore. Chrys Capital sold the shares at Rs 750 apiece. In 2006, it had bought about 10 per cent stake in Shriram City Union for Rs 160 a share. As of June 2012, the PE firm held about 12 per cent stake.
Shares of IndusInd Bank, where General Atlantic (4.92 per cent) and Norwest Venture Partners (1.43) hold stake touched a 52-week high of Rs 375 apiece last week on Bombay Stock Exchange. GA had started buying IndusInd stake when the share price was around Rs 200.