Japanese financial services giant Nippon will hike its stake in India's top fund house Reliance Mutual Fund from 26% to 49%, while investing Rs 657 crore for the first tranche of 9%.
The first tranche values Reliance Capital Asset Management Company (RCAM), which runs Reliance MF, at Rs 7,300 crore, as per the deal announced on Wednesday.
Nippon would eventually up its stake to 49% in multiple tranches at prices to be determined on the basis of future prevailing assets and profitability of the company that are expected to be higher than the current levels.
Nippon already holds 26% stake in RCAM, which it had acquired for Rs 1,450 crore in 2012 while valuing the company at Rs 5,600 crore at that time.
Nippon Life manages over US $500 billion (Rs 30 lakh crore) in assets, highest in the world for any life insurer, while RCAM is part of Reliance Capital, the financial services arm of Anil Ambani-led Reliance Group.
RCAM is the largest asset manager in India, in terms of Asset Under Management, managing Rs 2,18,338 crore (US $36 billion) as on September 30, 2014, across mutual funds, pension funds, managed accounts and offshore funds.
"Nippon Life will be increasing its stake in Reliance Capital Asset Management from the existing 26% to 49% in two or more tranches," the two companies said in a joint statement.
"The Japanese company will be investing an aggregate value of Rs 657 crore (US $108 million) to acquire an additional stake of 9% in RCAM in the first tranche, to reach a 35% stake.
"The transaction pegs RCAM's valuation at Rs 7,300 crore (US $1.2 billion), the highest valuation till date for any asset management company in India. This transaction is expected to be completed within the current financial year, subject to regulatory approvals," the statement said.
Subsequently, Nippon Life Insurance will have an option to increase its stake further by an additional 14%, to reach 49%, in tranches, it added.
"We welcome Nippon's decision to further strengthen this partnership and acquire an additional stake in our asset management company. We strongly believe their expanded role in the Company will accelerate our growth, reach and performance," Reliance Capital CEO Sam Ghosh said.
Nippon Life also holds 26% stake in Reliance Life Insurance Company, which it had bought for Rs 3,062 crore. This deal was completed in October 2011 and it had valued the Indian insurer at over Rs 11,500 crore at that time.
Recently, Nippon gave indication that it was willing to hike its stake in Reliance Life as well once the regulations permit so.
The Indian government has now proposed to hike FDI cap in insurance sector from 26% to 49%. The proposal has been cleared by the Union Cabinet, but needs to be passed by Parliament.
"Our partnership with Reliance Group is an exemplary example of successful collaboration between two big Corporations and countries. We look forward to strengthening this relationship and using the collective experience of the two corporations to the advantage of the two global economies," Nippon Life Insurance President Yoshinobu Tsutsui said.
Reliance Capital shares were trading nearly 2% higher at Rs 490.5 on the BSE in early afternoon trade.
Reliance Life, which is part of Anil Ambani-led business conglomerate Reliance Group's financial services arm Reliance Capital, has expanded its partnership with Nippon Life even further and also adopted certain business models of Japanese insurance giant in its practices.
Besides, Nippon Life has also reiterated its commitment to partner the Indian group in its proposed 'Reliance Bank' venture once the banking licence is granted by the RBI.
Reliance Life Insurance (RLI) is amongst the leading private sector life insurance companies in terms of new business premium with a market share of 10 per cent of the private sector life insurance industry.
Nippon Life Insurance is already the biggest foreign direct investor in Indian asset management and life insurance sector till date.
As part of its strategy to enhance investments outside of Japan, Nippon has already been investing substantially in the Indian equity and bond funds through RCAM.
Financial services major Reliance Capital earlier this month reported a 20% rise in its second quarter net profit at Rs 217 crore, helped by robust growth in mutual fund, commercial finance and general insurance businesses.
The total income rose by 12% to Rs 2,084 crore for the quarter ended September 30. In asset management business, the profit before tax rose by 71% to Rs 114 crore, while average assets under management grew to Rs 1,22,068 crore.
Reliance Life Insurance's net profit touched Rs 53 crore in the September quarter. During the same period, the net profit of Reliance General Insurance stood at Rs 25 crore.