Deutsche, Morgan Stanley close in on fund

Deutsche Asset Management and Morgan Stanley Investment Management are understood to be the two finalists for the Standard Chartered mutual fund business in the country.

The two mutual fund companies will be given access to Standard Chartered's data room for due diligence shortly.

Once the two potential acquirers satisfy themselves with the quality of business and submit their final bids, the deal will be sealed. The sale is expected to be completed by the end of October and the business transferred within three months.

The deal could fetch over Rs 700 crore, among the highest paid for any mutual fund in the country. A Standard Chartered Bank spokesperson declined to comment on the development.

The Standard Chartered Mutual Fund brass was in London last week making presentations to the six potential acquirers. Of the 16 asset management companies that showed interest in the business, five were invited for final presentations by Standard Chartered at its London headquarters.

The five, ING Investment Management, Morgan Stanley Investment Management, Deutsche Asset Management, Schroder and UBS, were chosen for their commitment to business, employee retention and basic minimum bid, sources said.

Later, JP Morgan was also invited for a presentation after it raised its bid.

Lotus Asset Management, the joint venture between Temasek and Sabre Capital, rumoured to be a front-runner, did not figure in the short list.

Sources said bidding was aggressive "" upwards of 5 per cent of assets under management "" despite Standard Chartered having a significantly low proportion of assets under management in stocks.

The Standard Chartered mutual fund had Rs 15,551 crore of assets under management at the end of August. The average asset size during the month was Rs 14,304 crore and 5 per cent of this works out to Rs 715 crore.

Franklin Templeton had paid close to this, though for a far smaller asset base but with a significantly higher equity proportion, to buy out ITI Pioneer in 2002.

If Deutsche and Morgan Stanley do not come up with a satisfactory price, the other contenders may be given a chance.

Sources said a point in favour of the two final candidates was that both had a presence in India and would not have to go through too much regulatory scrutiny.

Schroder and UBS are not in India yet and they will need clearance from the Securities and Exchange Board of India, which will delay the sale. Standard Chartered wanted to speed up the deal, sources said.

The scramble for the acquisition reflects the growing desire of foreign firms to enter the Indian mutual fund business and the increased cost of raising funds because of new norms laid down by the regulator.

Deustche Asset Management manages a mere Rs 6,742 crore and Morgan Stanley Rs 2,688 crore in India.

While Deustche is struggling to expand its business in a fiercely competitive market, Morgan Stanley wants to rekindle its Indian fund business.