India’s largest mutual fund company, Reliance Capital, completed the sale of 26 per cent stake in its asset management and mutual fund unit to Japanese financial services giant Nippon Life for Rs 1,450 crore. Sam Ghosh, CEO, Reliance Capital, talks to NDTV Profit about the completion of stake sale and the road ahead.
Below is the complete transcript. Also watch the accompanying video.
- Q: Congratulations on the completion of the stake sale. Can you take us through the journey and by when do you expect synergies to start flowing in?
A: We started this journey rather with a turning point in January this year. We signed an MOU prior to that and saw the transaction with Nippon Life in the last financial year. On the life insurance side, we signed a different agreement with Nippon Life in March and we had to get seven approvals to close this transaction. So since March to October, we were working on those approvals besides SEBI, RBI, the key regulators. We had EPFO and NPS, PFRDA and then we have some overseas revenue and then we have some oversees regulators also. So, getting all these regulatory approvals take 4-5 months and that’s how we managed to get all the approvals and we thank the regulators for the same.
Now we plan to close the transaction. The transaction is about Rs 1,450 crore for 26 per cent and Nippon Life is paying Reliance Capital. If you look at it in terms of valuing the Reliance Asset Management, it is about Rs 5600 crore, making it the largest transaction in the mutual fund industry space. It is also the largest financial transaction in the financial industry. Going forward, we already have discussed this with Nippon how they want to operate this. We look at two or three areas of cooperation in that space and one is Nippon Life fund. They have around $600 million fund in the management. We are looking to manage some of those funds in India. The second area where we want to work together is where Nippon can help distribute some of our funds in the international market, especially in Japan, where they are very strong. We are working on those two areas this financial year to help our company garner more and more assets under management (AUM).
- Q: By how much do you expect this deal to help bring down your debt burden?
- A: If you look at Reliance Capital itself, we have Rs 18,000 crore of debt as of June. On the books, Rs 13000 crore is related to commercial finance business. So, Rs 5000 crore is related capital holding. The Rs 1450 crore that came in today will go towards reducing the debt. Going forward, we have some more transaction, which we want to work on to reduce the debt further. So as an insurance company, we are working on that transaction.
- Q: Any further hike in stake of Nippon Life is expected going forward?
- A: Both of us agreed that we will discuss that in future. At this point, they have taken a stake in asset management company and in good fate, we will discuss this whether they want to take further stake in future and both parties will come to a joint agreement on that.
- Q: Any possibilities of consolidation in the mutual fund space and have you drawn up a list of potential partners, you are looking at a potential foreign partnership?
- A: This point is too early to talk about partners. When the time comes, we will discuss that because we are the only company which has 100 per cent ownership in the general insurance space and we would look at a partner who would look at a 20 per cent stake.
- Q: What are your growth plans for the company going forward, any targets?
- A: See if you look at our asset management company, funds under management are over Rs 80,000 crore. So, AUMs have grown with the recent announcement by SEBI, which was a very welcome step. We expect that AUMs for the industry itself will grow significantly and our asset management company should be able to benefit from this proportionately primarily because we're a large retail company with over 250 branches in small towns etc. so that will help us garner business from small towns and this'll obviously help our asset management company but also the capital markets as a whole will benefit from the move by SEBI, so we're looking forward to a significant growth in our AUMs.
- Q: Do you think the steps taken by market regulator are sufficient to change the momentum in the industry?
- A: See I think it’s too early to comment on the specifics on this. The very fact that SEBI has come out with specific guidelines to help the industry grow, I think we should be thankful for that. I think this was long needed and now we expect to work through the finer details. However, we know that would aid significant growth in the AUMs, at least for our company and the industry.