After IDFC Mutual Fund has decided to exit the fund business, even if partially, Reliance Mutual is actively scouting for a strategic investor. Several others are in the queue
Reliance Capital, which had sold 5% of its stake in Reliance Capital Asset Management to Eton Park in what has been the highest-ever valuation for a mutual fund's assets, is now looking to sell a bigger chunk of its equity in what it terms as a strategic alliance. This comes close on the heels of the Moneylife article last Friday (see: http://www.moneylife.in/article/8/6228.html) that IDFC Mutual Fund was exiting the fund business. IDFC officials attempted to deny it orally (no official denial has come so far) but on Monday, a senior official has been quoted in a business paper that it is looking for a strategic alliance. In fact, according to reliable sources, IDFC officials are actively pursing discussions regarding valuation of the fund management business which manages almost Rs27,000 crore in assets.
In October last year, Cholamandalam exited the mutual fund business by selling its stake to L&T Finance, an associate of engineering giant Larsen & Toubro.
According to our sources, sponsors of at least 10 asset management companies (AMCs) are mulling whether to continue in this business. This includes later entrants, especially those started by broking houses which have a very low tolerance for losses and low patience for long-term investment.
In December 2007, at the height of the global bull market, Eton Park had paid Rs500 crore for its 5% stake in Reliance Asset Management, which valued the mutual fund business of Reliance at a mind-boggling 13% of assets under management. Reliance will get much lower valuation for its stake now.
Eton Park is a hedge fund founded by former Goldman Sachs Group partner Eric Mindich. At the time Eton Park acquired the stake, Mr Mindich had said: "We share Reliance Capital's excitement on the growth prospects of the industry." But soon after Eton Park bought the stake, the global markets went through huge turmoil, bringing the world to the brink of the 1930s style Depression. While the world has recovered from that crisis and the Indian economy has done exceptionally well, the Indian fund businesses have suffered a series of blows, including frequent and stricter regulations, most notably the abolition of entry load and tighter rules for paying commissions to distributors. In January this year, T Rowe Price acquired a 26% stake in UTI Asset Management for $142.4 million (Rs650 crore), or just 3.2% of assets under management (around Rs79,000 crore) at that time. L&T took over the loss-making Cholamandalam AMC for just 1.5% of assets under management.
This shows that while the sponsors may be wanting to exit based on certain expectations of sunk costs, there is bound to be huge disparity in valuation depending on the size of the fund. Simply put, smaller funds would have to take a loss to get out of the business.
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ACE has been given time till 13th August by commodity market regulator Forward Markets Commission (FMC) to meet the guidelines to become a national exchange that includes demutualisation and a total net worth of Rs100 crore
Kotak Group-promoted Ahmedabad Commodity Exchange (ACE) today said it would complete all the necessary formalities to transform into a national bourse before its 13th August deadline expires, reports PTI.
Regional exchange ACE has been given time till 13th August by commodity market regulator Forward Markets Commission (FMC) to meet the guidelines to become a national exchange that includes demutualisation and a total net worth of Rs100 crore.
"We are in the advanced stage of completing necessary formalities required for final recognition. We will surely complete well before the deadline," Kotak group head of strategy T Raghunath said when asked whether it would be able to meet the guidelines this time.
ACE had missed the earlier deadline of 13th May, however, FMC gave it a three-month extension to complete the process. The country at present has four national exchanges-Multi Commodity Exchange (MCX), National Commodity and Derivatives Exchange of India (NCDEX), National Multi Commodity Exchange (NMCE) and Indian Commodity Exchange (ICEX)-and 19 regional bourses.
In 2009, the Kotak Group became an anchor investor by picking up 51% stake in ACE. It is helping in upgradation of the regional castor exchange to a national multi-commodity bourse.
"The exchange is in the advanced stage of raising its net worth to Rs100 crore, which is one of the requirements to become a national bourse," he said. Last week, state-run procurement agency Haryana State Cooperative Supply & Marketing Federation Ltd (HAFED) had said it has bought 15% stake in ACE.
Asked about HAFED's stake in the exchange, Mr Raghunath declined to comment: "The exchange has signed a non-disclosure agreement with the stake holders."
Commodity market regulator FMC has set up guidelines for national exchanges, which include demutualisation, raising net capital to Rs100 crore, setting up of infrastructure for conducting online trading and delivery centres, across the country for various commodities.
According to FMC guidelines, the proposed national exchange should have a demutualised structure, which means the share holders of the exchange should not have any trading interest either as a trading member or client at the exchange.