The Hindu Business Line : Investor appetite for mutual funds’ stake likely to revive

LIC Housing Finance (LIC HF), which holds a 39.3 per cent stake in LIC Mutual Fund, has sold 19.3 per cent of this stake to Nomura Holdings. It also sold a stake in LIC Trustee Company.

The stake sale by LIC HF in LIC MF (one of the top-10 fund houses in terms of assets under management) signals that investor appetite for stake sales in mutual fund arms of financial institutions may be reviving. This may allow banks that have AMC subsidiaries to unlock value and also raise capital for their funding needs.

LIC (49.5 per cent), GIC Housing Finance (11.2 per cent) and LIC HF (39.3 per cent) were the key shareholders of LIC MF. Nomura plans to acquire a 35 per cent stake, of which GIC Housing Finance and LIC HF are planning to sell 11.2 per cent and 19.3 per cent respectively. The two housing finance companies expect to realise Rs 138 crore and Rs 89 crore respectively from the stake sale. The cash LIC HF is expected to realise is 26 per cent of the net profit earned in 2008-09, whereas in the case of GIC Housing Finance it is 1.56 times the net profit. Both stocks registered a muted reaction to the news; while LIC HF stock lost 2.5 per cent, GIC rose by 3 per cent after announcement of the deal.

The valuations for this deal, at 2.5 per cent of the latest assets under management (May 2009), may on the face of it look modest as the last few cases of stake sales saw the AMCs valued at over 5 per cent of assets.

Standard Chartered AMC’s sale to IDFC, Sundaram Finance’s 49.9 per cent stake sale in its AMC to BNP Paribas, and Reliance Capital’s 5 per cent stake to Eton were valued at more than 5 per cent of the assets under management. However, the reason for lower valuation of LIC MF may be due to the small proportion of equity funds to total assets under management (less than 5 per cent), reducing margins.

UTI AMC, the fourth largest mutual fund, is also said to readying to sell a 26 per cent stake. Though UTI AMC earlier planned for an IPO, recent news reports suggest a likely strategic sale. LIC, State Bank of India, Punjab National Bank and Bank of Baroda each hold a 25 per cent stake in UTI and may see value unlocking for their stake. Other banks and institutions including SBI, PNB, BOB, HDFC, ICICI Bank, Kotak Mahindra Bank have mutual fund arms, which they may choose to sell.

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