Meeting on deadlock on Thursday, both sides look for a compromise
After a gap of almost five months, a solution to the sale of Axis Bank Private Equity Fund may be in sight.
Tomorrow, Axis Bank’s top management and major investors of the PE fund, including large state-owned banks who have till date been opposing Axis’ exit, are meeting to try and break the deadlock.
Axis Bank’s PE arm had raised Rs 600 crore ($148 million) through its first fund, Axis Infrastructure Fund. Axis Bank had invested Rs 230 crore and became the anchor investor. Canara Bank, Bank of Baroda, Union Bank, United Bank, Corporation Bank and Punjab National Bank had put in Rs 185 crore. The Essar group, Reliance Industries, Mercator Lines, Era Construction and Serum Institute had also reportedly put in Rs 100 crore via different investment vehicles.
So far, the fund has invested around Rs 400 crore in five companies. But Axis has been keen to exit the fund, which is “non strategic” to its operations. With attempts to bring all the key investors of the fund (called limited partners, or LPs) to the discussion table failing in the past, this meeting gathers significance and has raised expectations of a reconciliation.
A compromise may be agreed, according to sources, under which the five assets managed by the fund will get divested either fully or partially and the proceeds returned to the LPs, keeping in mind that at least the minimum hurdle rate is achieved. Hurdle rates are the minimum returns that have to accrue to the investor, beyond which there is profit-sharing with the asset management company that runs the fund. Typically, hurdle rates in the PE industry are 8-15 per cent.
This is likely to be a departure from the earlier move by Axis Bank, which had invited bids for selling the management company of the PE fund. In May, seven companies – Lanco Infrastructure, IL&FS Investment Managers, Aditya Birla PE, Edelweiss Capital, Shapoorji Pallonji group, Elephant Capital and US-based Darby Private Equity – filed expressions of interest for taking over the fund.
‘No confrontation’
Shikha Sharma, MD & CEO of Axis Bank refused to give details of the meeting’s agenda, but said, “We have always maintained we don’t want any confrontation with any investor. We will follow what they would like us to do. We have maintained that we think PE is not a strategic business for us. So, we have to collectively figure out what will be the future course of action. Then the investment committee of the fund will take a call.”
Consensus will be needed. In February, when it became public that the managers of the fund were looking at buying out the promoter, Axis Bank, most investors expressed outrage, claiming breach of faith. They said they’d put in money because of the credibility of Axis, the country’s third-largest private sector lender, formerly UTI Bank. Since then, most have toned down their opposition.
Therefore, the PSU banks which have invested in the fund may support Axis’ move to divest the assets, but say they will only settle for a rate of return that they think is just. If they are not satisfied with the offer, they will resist Axis Bank’s efforts to exit.
On a three-year horizon, the banks are expecting at least 15-30 per cent return on their investments. “Only if we get the returns which we had set as target will we exit. If we do not get it, we will wait,” said Ramnath Pradeep, chairman and managing director, Corporation Bank.
‘Need to move’
But many like K R Kamath, chairman and managing director, Punjab National Bank, feel it’s time to bring the matter to its logical conclusion. “If Axis Bank says it just can't manage the fund, we will have to see what is in our best interest. The interest in the fund was because we had some comfort on account of Axis Bank. If that is gone, we need to see what best alternatives are present,” he said.
The smaller investors in the fund said they won’t oppose the majority view. “We are a minor stakeholder in the fund. We will go by the majority. We need to assess what are the credentials and the outlook of the buyer, and unless that is there, we will have reservations,” said Bhaskar Sen, chairman and managing director, United Bank of India. The bank is likely to remain non-committal in case some proposal of divestment comes up in the meeting tomorrow.
Sources said Axis might put the ball in the investors’ court by calling for fresh expressions of interest. Sources say Renuka Ramnath’s new fund, Multiples, is expected to join the race for the PE’s assets if fresh bids are called. This, however, could not be verified.
