State Bank of India, the country’s largest commercial bank, is entering the private equity sector by picking up close to 20% equity stake in Sage Capital Funds Management, an asset management company (AMC) floated by Sage Capital.
The company has started a $200-million (about Rs 790 crore) fund, Sage Capital Value Fund, that will invest in Indian companies, as a volatile capital market pushes down valuations of firms prompting this class of investors to value-pick stocks in the world’s second-fastest growing economy.
This is the first time that SBI has entered the private equity domain, though bank chairman OP Bhatt had hinted at it last year by saying that the bank is talking to strategic partners on a selective basis. SBI had been aiming to deploy about Rs 5,000 crore for private equity, Mr Bhatt had then said.
Although SBI officials weren’t available for comment, Sage Capital founder and managing director Manish Kanchan confirmed the bank’s involvement in Sage Capital Funds. “The fund has received positive response from various institutional investors we’ve spoken with across the world. We are happy with SBI’s decision to acquire a stake and expect to leverage multiple synergies with the bank and our portfolio companies,” he added.
According to sources close to the development, Sage Capital is also talking to some foreign investors, including sovereign funds from the Middle East and large financial investors from the US, to sell an additional 10% in AMC. The company also plans to manage more India-dedicated funds across several investment themes over the next three years.
While SBI has a presence in venture capital through its joint venture with Japan’s Softbank Investment, the bank has identified private equity, along with general insurance and merchant acquisition, as its new growth areas. Although state-owned banks have been almost absent from the private equity sector, which last year saw about $13 billion pumped into India, private banks such as ICICI Banks have been quite active in this area.
Apart from banks, large corporate houses such as Ambani’s Reliance Capital and Kishore Biyani’s Future Group, have a strong presence in private equity. The latest business house to join the fray is the $24 billion Aditya Birla Group.
Sage Capital had earlier picked up an 8% stake in Innovative B2B Logistics Solutions, a Delhi-based private cargo train operating company. This apart, it has also invested in Hira, a jewellery and real estate company Dev Developers. Although the ongoing slowdown in the US economy is expected to affect private equity firms, SBI would likely to gain in the long term through better valuation, said sources.
Shares of SBI fell 2% to Rs 2,183 on the BSE compared with the broader index which was down 2.8%. The shares have fallen 3.7% in the past month.While more than $13 billion of PE money came into India between January and October, it is expected that about $20-25 billion may be invested this year, with smaller deal sizes, as unlike large transactions last year.
Source: Economic Times