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Warburg, General Atlantic eye buying private equities in Sharekhan worth INR 2.3Bn

Bulge bracket global investors Warburg Pincus and General Atlantic are close to signing an agreement to buy out the private equity investors in stock broking firm Sharekhan for nearly Rs 2,300 crore, two people directly familiar with the matter said.

The American PE funds will invest more than $175 million (Rs 1,112 crore) each and own equal stakes, they said.
 
"We are trying to sign the agreement this week," one of the people said. "Negotiations are on with the senior management the company as they may be participating in the transaction."
 
An announcement will be made soon, this person said.
 
PE fund CVCI, which holds 60 per cent of Sharekhan, had mandated Citibank to sell its stake in the brokerage firm. A competitive bidding was held to sell the ownership and, as ET reported earlier, the Warburg-General Atlantic combine had pipped French bank BNP ParibasBSE -0.66 % and local lender IndusInd BankBSE -2.29 % to emerge as the winner. 
 
Baring Asia Private Equity owns a 14 per cent stake in Sharekhan, while IDFC holds 10 per cent and Samara Capital, 5 per cent. The balance is held by employees.
 
A Warburg Pincus spokesperson said the firm was bound by internal operational policies, which didn't allow discussion of investment activities. General Atlantic India Managing Director Sandeep Naik didn't respond to a text message sent to his mobile phone.
 
Sharekhan will seek Foreign Investment Promotion Board apprapproval for the deal, sources said.
 
India allows foreign investment in securities broking through the automatic route, but an investment banker said since Sharekhan has a commodity broking business as well, deals involving it would need to be vetted by the FIPB.
 
"Rules for automatic route only specify securities broking and it doesn't mention anything on commodity broking," this person said. 
 
In recent cases, the Foreign Investment Promotion Board has taken a view that since commodity broking is not expressly mentioned in the regulations for automatic route, any foreign investment in the business directly or indirectly would need its approval, he added.
 
When CVCI invested in the company years ago, it was made through the automatic route. Under the current interpretation, the investment is in breach of FIPB rules. Hence, Sharekhan recently sought a post-facto, or retroactive, approval to regularise that deal, said people in the know.
 
Warburg and General Atlantic are among the earliest PE firms to enter India and have historically taken big bets on the Indian financial services space with investments in stock exchanges to brokerages, non-banking finance companies and banks, such as HDFC, Kotak Mahindra Bank, National Stock Exchange and AU Financiers. For General Atlantic, this would be a reentry into Sharekhan, which it had exited in 2007. 
 
Sharekhan has a net worth of Rs 1,300 crore. It is the third largest brokerage firm in India, after ICICI Direct and HDFC Securities, with 160 branches and 13 lakh retail investors as customers 
 
(Source: Economic Times)
 
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