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Marriage of convenience booming among broking sector

business Updated: May 02, 2007 00:55 IST
Vyas Mohan
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Marriage of Indian and foreign financial services firms could be an ongoing phenomenon, it seems. The broking industry, which has already seen a number of its big boys selling stakes to foreign strategic partners, could expect more in days to come.

While the buzz is getting louder about Merrill Lynch picking up strategic stake in India Infoline’s insurance distribution arm, another brokerage Prabhudas Lilladher is learnt to be in talks with a clutch of foreign financial houses to sell a part of its stake.

Sources close to the development said that Prabhudas Lilladher is planning to sell 15 per cent stake, for which four players including Citi Venture, the venture capital arm of the Citigroup, are in the race. According to sources, the deal is valued around Rs 15-20 million.

Recent reports that said US-based Merrill Lynch, which currently holds about 14 per cent in the Mumbai-based brokerage India Infoline through stocks and convertible shares, would pick up a substantial additional stake in the company, were followed by denials from the company. Sources in broking circle said that the global financial giant is looking to take over the insurance distribution business of India Infoline valued around Rs 1,000 crore.

“India Infoline has a large client base under its various businesses including broking and that is what Merrill Lynch is looking at,” said a BSE broker.

In the meanwhile, JM Financial and Infrastructure Development Finance Company are learnt to be jointly bidding for a strategic stake in domestic broking house Sharekhan Securities for around Rs 600 crore.

Another denied report of the recent past was of JP Morgan’s plans to pick up 50 per cent stake in Enam Financial for around $400-500 million.

The expected deals are in line with the trend that exploded soon after foreign investors paid Rs 5,200 per share of the Bombay Stock Exchange.

“The way the brokerage houses are gearing up for competition makes it clear that a number of deals are in the pipeline. A lot of private equity investors from the US and the UK are looking at domestic brokerage houses. The BSE stake sale has raised the benchmark to their valuation and has increased foreign investors’ confidence in the Indian market,” said Nimish Shah, Managing Director of Fortune Financial Services, which recently sold 22 per cent of its equity to a group of UK-based private equity investors for Rs 22.38 crore.

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 to develop 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 sold about 20 per cent to Citigroup Venture Capital International, a leading global private equity player, while the Bank of Muscat bought a stake in Mangal Keshav Group.

Similarly, Angel Broking is looking out for a suitable private equity player as a strategic partner.

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