JM Financial and Infrastructure Development Finance Company (IDFC) are learnt to be jointly bidding for a strategic stake in domestic broking house Sharekhan Securities.
Sources close to the development said IDFC and JM Financial were planning to buy out the entire stake of the promoters of SSKI, which operates the retail broking outlet Sharekhan, for Rs 600 crore. While IDFC wants to increase its stake from the existing 33 per cent it had bought in May 2006, JM Financial, sources said, finds good value in Sharekhan’s research team.
"SSKI is doing well in all areas of the broking business and it makes sense for IDFC to increase its stake in it. For JM Financial, Sharekhan is a ready-made brokerage with a wide client base," said Rahul Nangalia of Mumbai-based Nangalia Stock Broking.
They might also buy the stake of any of Sharekhan’s private equity investors who want to cash out, sources said. General Atlantic Partners, Intel Capital and HSBC Private Equity together hold around 45 per cent in Sharekhan. Tag-along rights, which gives equal rights to minority and majority investors, could be delaying the deal, as SSKI’s promoters are yet to sort out issues with their private equity partners.
A tag-along right is a contractual obligation aimed at protecting the minority shareholder’s interest, particularly in stake sales. It gives a right to the minority investor to sell its stake when the majority investor opts out.
When contacted, IDFC Managing Director Rajiv B Lall denied the development while Sharekhan promoter Shripal Morakhia was unavailable for comments.
The development is in line with the ongoing trend in the broking industry where players are either forming fresh partnerships or cashing out from existing ones to capture a bigger share of the business.
JM Financial had recently parted ways with Morgan Stanley by selling its holding in a joint broking arm and buying the latter’s holding in the investment banking business. Hence it is in JM Financial’s interest that it develops a foothold in the broking business.
Similarly, the ASK group recently bought Raymond James out of its joint venture ASK Raymond James, while BNP Paribas bought a 27.18 per cent stake in Geojit Financial Services.
Likewise, Anand Rathi Securities has sold about 20 per cent to Citigroup Venture Capital International, a leading global private equity player. Similarly, Angel Broking is looking out for a suitable private equity player as a strategic partner. Also many other brokerages, including Motilal Oswal and Mangal Kesav, are planning to come out with IPOs to fund their expansion. While shares of JM Financial ended Rs 31.75 lower on the Bombay Stock Exchange at Rs 973.95, those of IDFC closed marginally higher at Rs 91.85.