A clutch of high-profile investors, led by Lehman Brothers and Holcim Group chairman Thomas Schmidheiny, are together buying a 5% stake in Edelweiss Capital—a leading financial services company in the country—in a pre-IPO placement of equity.
Edelweiss Capital is close to signing deals worth $50 million with the global investors, which value the Mumbai-based broking and investment banking group at about $1 billion, according to sources. The valuation is almost on a par with those of top investment bankers such as DSP Merrill Lynch and JM Financial, and is believed to be much higher than that of large domestic brokerage houses such as Motilal Oswal Securities and Sharekhan.
Motilal Oswal had placed a 9% stake with private equity investors New Vernon and Bessemer for Rs 125 crore. Sharekhan, the retail broking arm of the SSKI Group, is estimated to be valued at about Rs 650 crore.
Mr Schmidheiny is buying a stake through his family investment firm. The three other investors include existing equity partner and New York-based hedge fund Galleon Partners, Middle East-based asset management company (AMC) Shuaa Capital, and Sequoia Capital. The Edelweiss board is meeting next week to finalise the deals, said sources.
The funds raised through the pre-IPO placement will be used to expand its mutual fund and wealth management business. Edelweiss has received Sebi approval for setting up an AMC. It is planning to go public to raise $100-150 million by the end of the current financial year.
The new issue plans are being mooted to provide an exit route to past investors, say sources. In December 2005, London-based Greater Pacific Capital had picked up a 20% stake in Edelweiss Capital and also bought out existing strategic investor Connect Capital’s stake. More than 25% of Edelweiss Capital is held by its employees.
The Indian broking and investment banking space has been witnessing an accelerated flow of foreign investments amid extremely bullish market conditions in the past 3-4 years. This has resulted in significant improvement in their valuations, prompting an increasing number of players to take the private equity route and/or go for an IPO.
After India Infoline, IL&FS Investsmart and Emkay Share and Stock Brokers successfully raised funds from the primary market, a few others, including Motilal Oswal Securities and Religare Securities, are in the process of entering the market. Valuations of Indian securities have been scaling new highs on the back of mega deals in JM Financial and DSP Merrill Lynch.
Recently, Morgan Stanley paid JM Financial around $445 million to buy out the latter’s 49% stake in institutional equity broking company JM Morgan Stanley Securities while Merrill Lynch acquired Hemendra Kothari’s 50% stake in DSP Merrill Lynch for $500 million in December ‘05.
Source : Economic Times