Bain, TPG in talks to buy minority stake in Tata Capital Financial Services

Bain Capital has been an active participant in investing in financial services and banking with some large deals
Private equity (PE) firms Bain Capital and TPG Capital are believed to be in preliminary talks on acquiring a minority stake in the Tata group’s Tata Capital Financial Services (TCFSL).

According to sources in the know, the Tatas are in discussions with a clutch of PE funds to gauge their interest and may offer anything between 10 and 15 per cent, based on the valuation that it could get for such a transaction.

A spokesperson for Bain Capital said “no comment” when asked about the talks. TPG declined to comment on the matter. A Tata Sons spokesperson declined to comment on “market speculation”.

Bain Capital has been an active participant in investing in financial services and banking with some large deals. In 2017, a Bain-led consortium invested $1.8 billion in Axis Bank, giving the bank a lifeline after it was hit by various financial issues. With this deal, the consortium will get around 9 per cent holding in the company. 

Last year, L&T Finance Holdings, a leading non-banking financial company (NBFC), sold 5.27 per cent of the promoters’ stake to Bain Capital through an issue of preferential shares and warrants valued at Rs 708 crore. 

TPG, on the other hand, acquired a stake in Sai Life Services through a secondary share purchase from Tata Capital. Chennai-based NBFC Five Star Business Finance recently raised $50 million from TPG, an existing investor.   

In 2018-19, Tata Sons invested Rs 2,500 crore in Tata Capital   — the group’s financial services holding company — which, in turn, holds 100 per cent equity in TCFSL. The same year, TCFSL converted compulsorily convertible preference shares worth Rs 656 crore into equity shares of Rs 10 each at a premium of Rs 74.09. The Tatas’ stake sale is in addition to the financial services arm planning to raise up to $1.5 billion by way of debt from overseas markets in the ongoing financial year. 

In line with the rest of the NBFC sector facing a liquidity crisis, TCFSL’s net interest margin declined to 4.62 per cent in FY19 from 4.92 per cent the year ago. But its loan book rose 21 per cent to Rs 44,022 crore as of March 31, 2019, from Rs 36,319 crore reported a year earlier. After cleaning up its books of bad debt due to infrastructure debt given earlier, the company reported a net profit of Rs 437 crore on an asset base of Rs 47,836 crore in FY19, as against Rs 402.89 crore in FY18.

Top Tata Sons officials have said the financial services business would remain a priority for the group for investments in the coming years.

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