HSBC, the global financial services giant headquartered in London, has agreed to buy L&T Mutual Fund, the asset management business of L&T Finance — the non-bank financial services arm of the Larsen & Toubro group of India.
L&T Finance will get $425 mln, or around Rs 3,200 cr, for the mutual fund unit which has assets of close to $10 bn under management. The unit of L&T Finance had annual revenue of 347.88 cr as of March 2021.
HSBC will then merge the business with its India asset management business, which had Rs 11,700 cr (US$1.6bn) under management as of September.
L&T Mutual Fund is the 12th largest Asset Management Company (AMC) in India and offers equity, fixed income and hybrid schemes to both retail and institutional investors. Retail investors comprise 64% of the company’s overall assets under management.
L&T Finance Holdings said the move to sell off the mutual fund business was aimed at replenishing its ability to lend money to its customers.
Non-banking finance companies ended up in a sticky patch in 2019 due to both structural as well as incidental reasons. During the year, they faced considerable difficulty in rolling over their short-term loans due to fears of default by some of their large clients, after a major infrastructure group in India defaulted on its NBFC loans.
While a crisis and meltdown was averted, the difficulties faced by NBFCs brought to sharp relief some of the structural problems with the NBFC business — particularly their asset-liability mismatch.
As a step towards ensuring long-term capital security, L&T Finance had, in February of this year, raised close to Rs 3,000 cr by selling its shares.
In a statement, L&T Finance said its latest move can also be seen in the context of strengthening its balance sheet.
“The transaction with HSBC is in line with our strategic objective of unlocking value from our subsidiaries which will help us to strengthen our balance sheet for our lending business. When seen alongside the recent capital raise, it provides us with enough ammunition to increase the pace of retailisation in our lending portfolio, which is one of our long-term goals,” it said today.
The 10-year-old company plays in various sectors, including rural finance, housing finance and infrastructure finance.
The deal with HSBC will also give L&T Finance access to excess cash in the mutual fund unit until the completion of the acquisition, the company said.
“Both LTIM and HSBC AMC will work to ensure that there will be continuity of services to their investors and counter-parties in the interim,” it said.
As for HSBC Asset Management Company, the move is in line with its “strategic growth plans” in India, it said.
“HSBC stands to gain from an experienced team, diversified assets, strong retail customer base and the vast geographical reach that L&T Mutual Fund has built over the years,” it claimed.