Religare AEGON Asset Management Company is likely to buy out Lotus India Mutual Fund. This will be the first such deal since the global financial crisis caused the Indian stock markets to crash a record 23 per cent in October.
Lotus India Mutual Fund began operations in India in August 2006. As on October 31, the fund house's average assets under management were Rs 5,500 crore in 19 schemes. Ninety per cent of this is in debt and cash and only 10 per cent in equity.
Shareholders of Lotus India AMC include Temasek-promoted Alexandra Fund Management Private Limited, which holds about 43 per cent, and Rana Talwar-promoted Sabre Capital Investment Holdings that own about 32 per cent. Employees own another 25 per cent.
The AMC had diluted around 19 per cent in favour of 180-odd employees in February this year. It was not immediately clear who would sell out, but sources indicated that Sabre Capital would be the most likely to do so. The possibility of Temasek selling its stake cannot be ruled out since it is a private equity fund, said sources. The other option, according to sources, is that there could be a joint venture between Temasek and Religare-Aegon AMC.
Lotus India AMC was launched only in 2005 and has not had a great track record so far. According to Value Research Online, a fund-tracking firm, the AMC made a net loss of Rs 32.26 crore in 2007 and Rs 21.95 crore in 2008. From January to September 2008, its equity funds have made losses of 40.07 per cent. The fund has been aggressively launching fixed maturity plans, a product that has seen heavy redemptions in the recent liquidity crunch.
Religare AEGON Mutual Fund, a joint venture between Religare Enterprises, owned by the former promoters of drug major Ranbaxy, and Netherlands-based AEGON Group, already has approval from the Securities and Exchange Board of India to enter the asset management business. However, the fund house is yet to launch its maiden fund.
When contacted, Religare-Aegon AMC Chief Executive Officer Saurabh Nanavati said, "We can't comment on this at this point of time."
While Lotus India CEO Ajay Bagga could not be reached for comment, a senior official at the fund house said, "We won't be in a position to comment at this time."
Sources close to the development, however, said the Lotus-Religare-AEGON deal will be struck at 1 to 2 per cent of the average AUM, which works out to a deal size of Rs 50 crore to Rs 110 crore.
Although earlier deals have been struck at 5 to 6 per cent of AUM, experts said this valuation is fair for the company that has a high percentage of its AUM, almost 85 per cent, in debt, including liquid, liquid plus, fixed maturity plans and others.
A fund house typically earns around 1 per cent a year from equity investments. The income on debt is much lower at 0.25 to 0.5 per cent.
Also, the top management of Lotus Mutual Fund is not likely to be a part of this deal.
Sources said Religare-AEGON already has a top management team in place will gain access to a ready-made customer plus investment base through this deal.
Sources said that there were no other contenders for the AMC since talks for the deal began only in the middle of last week.
Sources indicated that Religare-Aegon AMC stands to gain little from the deal barring an asset base of Rs 5000-odd crore. However, Religare promoter, Malvinder Singh has already said that he would invest the cash from the Ranbaxy-Daiichi deal in the financial services business.
This year, there have been several deals in the mutual fund industry. Eton Park bought 5 per cent stake in Reliance AMC for Rs 500 crore, which was at 12.9 per cent of the fund house's AUMs. More recently, IDFC bought Stanchart AMC for Rs 830 crore, which was at 5.67 per cent of the AUM.