Kolkata-headquartered Srei Group, controlled by the Kanorias, is in talks with Essel Mutual Fund, currently controlled by Subhash Chandra’s Essel Group, says a media report. Essel Mutual Fund is registered with the Securities & Exchange Board of India (SEBI) with Essel Finance Wealth Zone Private Limited (EFWZ) as its Sponsor. Essel Finance AMC Limited is the Investment Manager to Essel Mutual Fund. MF deals are often struck at 1-4% of MF assets. This means Essel MF with roughly about Rs 1,200 crore assets under management could change hands at a maximum price tag of Rs 50 crore.
An eventual deal with Srei could ironically bring Essel MF to Kolkata, a place from Essel MF started its journey as Peerless MF. Peerless MF was renamed as Essel Mutual Fund with effect from November 1, 2017, after in August that year Essel Finance got the Sebi’s approval to acquire Peerless Funds Management.
A move to sell Essel MF by the Subhash Chandra led diversified group would be a key development but part of Essel Group’s broader efforts to deleverage (cut debt). Apparently, there is promoter debt worth Rs 13,000 crore. The group has already initiated talks to sell stakes in Zee Entertainment Enterprises and road and solar power assets. Essel Group, by chairman Chandra’s own admission, made misplaced bets in infrastructure projects and satellite TV business acquisition.
Kolkata-based SREI Group is said to have initiated the process to acquire the asset management business of Essel Group — Essel Asset Management, the Moneycontrol report said, quoting sources. A term sheet has reportedly been signed between both the parties, which is the first stage in an M&A process. The acquirer will now undertake the due diligence process.
Last month, Mint newspaper had reported that Essel may sell part of financial services business to cut debt. The group’s financial services arm operates businesses including foreign exchange, lending to small and medium businesses, home finance, mutual funds, wealth management, private equity, and investment banking, Mint had said in this report.
There is no surety of such deals would be consummated because a term sheet is not a binding agreement. Often when stakeholders put up assets for sale, many interested buyers are approached to go through the due diligence process. Of course, a deal to buy Essel MF assets would give Srei a reasonable foothold in the market. For FY18, Essel Finance AMC reported a net loss of Rs 11.3 crore on the back of Rs 14.2 crore total revenue.
When RupeeIQ reached out to Srei, the group gave the standard reply under such situations – “We do not comment on market speculations.”
Essel MF’s management team, at present, comprises Rajiv Shastri (CEO), Aditya Biyani (CMO), Madangopal Jalan (Chief Compliance Officer), Viral Berawala (CIO) and others. Rajiv was the CEO of Peerless MF.
Essel MF’s product basket contains four equity schemes, three debt schemes, and four hybrid schemes. Most of its assets come from Maharashtra, West Bengal, New Delhi, Telangana and Gujarat. These assets are spread across Essel Multi Cap Fund, Essel Large Cap Equity Fund, Essel Large & Midcap Fund, Essel Long Term Advantage Fund, Essel Liquid Fund, Essel Ultra Short Term Fund, Essel Short Term Fund, Essel Regular Savings Fund, Essel Equity Hybrid Fund, Essel 3 in 1 Fund and Essel Arbitrage Fund Arbitrage Fund.
Srei has already entered mutual funds through Srei Mutual Fund Asset Management Private Limited which was incorporated way back in November 2009. It is owned by Srei Infrastructure Finance Limited.
Essel Group has sealed a formal agreement with its lenders to get time till end-September to deleverage its balance sheet. It is a race against time. The lenders have agreed that there will not be any event of default declared till 30 September 2019, due to the movement in the stock price of Essel Group’s listed corporate entities (Zee Entertainment and Dish TV India). Zee stock is down 18% in the last one year and Dish stock is down nearly 43% in the same period.