Road to retail

It was an acquisition from the blue—not just because of the high price tag attached to it but also because of the profile of the buyer. Last fortnight, when infrastructure financing major IDFC snapped up Standard Chartered Mutual Fund for $205 million (Rs 820 crore), many eyebrows were raised—after all, this sum is 73 per cent higher than what Swiss bank UBS had last year agreed to pay for the mutual fund (UBS, which had offered $118 million, couldn’t clinch the deal as it didn’t get Reserve Bank of India approval). Says Rajiv Lall, MD and CEO, IDFC: “We must have paid a high price for acquiring the mutual fund. But if you look overall, it’s not a bad deal, as a mutual fund was the missing pie in our product portfolio. Secondly, if we had to build a fund as large as Standard Chartered’s, it would have taken three years.” IDFC had applied for licence from SEBI to start its mutual fund business.

But why should a project finance company dabble in a retail-oriented business, in the first place? Lall has the answer. “In the next two years, our aim is to be a financial conglomerate like Dexia of France (a world leader in public finance and financial services) and Macquarie of Australia that provides the entire gamut of products to our clients in the infrastructure space. Secondly, the acquisition also allows us to diversify our risk and revenue mix.” As of February 2008, of the Rs 14,180-crore assets Standard Chartered Mutual Fund managed, Rs 4,000 crore was in equity. IDFC wants to focus on the equity part initially, and solely on the infrastructure space.

This isn’t the first time IDFC, which derives half of its revenues from plain vanilla project financing, is growing inorganically. Last June, the company acquired a majority stake in broking firm SSKI Securities. Says Lall: “SSKI has the expertise in the infrastructure space and they are today providing investment banking and capital market solutions to our infrastructure clients. After all, two-thirds of the companies listed on the exchanges are in the infrastructure space.” There’s also a private equity arm, IDFC Private Equity, which plans to raise Rs 2,000 crore in its third PE fund. The first two funds have a combined corpus of Rs 2,500 crore, and have already invested in 23 companies. In partnership with Citibank, IDFC has also got into project equity (which will take a direct equity stake in infrastructure project). “Infrastructure debt financing (the flagship business) is lumpy. We need to have predictable and stable income streams,” says Lall. He’s almost there.

— Mahesh Nayak