Axis Bank Ltd., India’s top-ranked manager of debt sales, aims to bolster its equity underwriting operations by merging the unit with Enam Securities Pvt. in a transaction valued at about 20.7 billion rupees ($455 million).
Axis will swap 5.7 shares for each one of closely held Enam, the Mumbai-based companies said in a joint statement yesterday. Enam shareholders will get a 3.3 percent stake in Axis following the transaction, and Enam’s Manish Chokhani, 44, will be chief executive officer of the entity to be created by the combination, according to the release.
Axis’s first financial-services acquisition will combine capital at India’s fourth-largest bank with the clients and distribution network managed by Enam, said Deven Choksey, CEO of K.R. Choksey Shares & Securities Pvt. Shikha Sharma, 51, named CEO of Axis in April 2009, aims to expand its advisory unit after share sales in India climbed to a record this year.
“The deal is a shot in the arm for Axis, which was looking to expand: when you are becoming a global player, you need to have a bank at the front-end and distribution for the back- end,” said Choksey, whose Mumbai-based firm manages $125 million in assets. “It’s a win-win deal for both, as even Enam needs funds from a bank base.”
Shares of Axis rose 1.6 percent to 1,492 rupees as of 9:15 a.m. in Mumbai trading, extending their gains for the year to 50 percent. That compares with a 14 percent advance in India’s benchmark Sensitive Index. Stock markets in India were closed yesterday.
Enam is ranked third among equity-underwriters in India, where share sales climbed to 1.02 trillion rupees this year, surpassing 2007’s 782 billion rupees, according to data compiled by Bloomberg. Axis is at No. 16, the data show. In mergers and acquisitions, Enam is ranked No. 9 among advisers, while Axis isn’t in the top 20.
Yet Axis has beaten local and overseas rivals including HSBC Holdings Plc and ICICI Bank Ltd. in managing debt sales in the nation this year, according to data compiled by Bloomberg.
“Axis Bank is a powerhouse in several businesses like the bond market, debt syndication market,” Vallabh Bhansali, co- founder and chairman of Enam, told reporters yesterday. “For us to build a balance-sheet, we thought that combining forces would be an extraordinary opportunity.”
Bhansali, 58, will be a director on Axis’s board, the companies said. The transaction would combine Axis’s investment bank with Enam’s advisory service, as well as its institutional and retail equities units and its non-banking finance company, according to the statement. It won’t include Enam’s portfolio management service and asset management units.
Macquarie Group Ltd. advised Axis on the transaction, while Anil Singhvi, vice chairman of Reliance Natural Resources Ltd., advised Enam.
Enam won’t compete with Axis in the businesses that will be merged for five years, and will also license its brand to Axis for two years, Sharma said yesterday.
Enam “complements the strong corporate banking and debt capital market franchise of Axis Bank,” Sharma said. “Indian banking is in a sweet spot as India’s economy is in a sweet spot: Enam was a perfect fit and was too tempting not to consider.”
Axis is likely to merge with Enam’s investment banking and securities unit in an all-stock transaction that may be valued at about 21 billion rupees, ET Now reported yesterday before the announcement, citing people that it didn’t identify.
The transaction may be the second-largest involving India’s investment banks and securities firms, according to data compiled by Bloomberg.
Merrill Lynch & Co. spent $500 million in December 2005 to buy control of its Indian venture DSP Merrill Lynch Ltd. from its local partners, valuing that business at $1 billion.
Morgan Stanley paid $445 million in February 2007 for Mumbai-based JM Financial Ltd.’s stake in a business that traded in stocks for local and foreign institutions. At the same time, JM Financial paid $20 million to buy out Morgan Stanley’s share of that venture’s investment-bank, fixed-income and retail units.
“We are seeing a lot of small brokerages getting consolidated as the business has come under pressure given the competition from new entrants,” said Gaurav Gupta, managing director and head of Macquarie Capital Advisers India. “Competition is driving down realizations.”
Axis’s larger rivals have made acquisitions in recent years to add clients and outlets. ICICI Bank Ltd., ranked No. 2 among the nation’s lenders, bought smaller rival Bank of Rajasthan Ltd., based in northwest India, in August through a share swap in a transaction worth as much as 23 billion rupees.
Biggest Banking Acquisition
HDFC Bank Ltd., ranked third in India by capitalization, bought regional lender Centurion Bank of Punjab Ltd. in July 2008 for 71.2 billion rupees in India’s biggest banking acquisition, according to data compiled by Bloomberg.
Axis, which had previously sought to buy Global Trust Bank Ltd. in January 2001 to create the nation’s largest non-state lender, scrapped that transaction in April of that year after allegations of manipulation in Global Trust shares.
Enam Securities, based in Mumbai, was founded in 1984 by Manek Bhanshali, Nemish Shah,Bhanshali and Jagdish Master, according to the company’s website.