Edelweiss Financial Services, which has seen its stock price tumble nearly 60% in the last one month after a weak third quarter, is in talks with global funds to raise “confidence capital” at the subsidiary levels, sources have told Moneycontrol.
“The promoters are in advanced talks with global funds to sell a minority stake in the EGIA (Edelweiss Global Investment Advisors) or advisory vertical and raise around Rs 400-Rs 500 crore,” a source told Moneycontrol. Edelweiss has three different business groups – credit, advisory and insurance.
Due diligence was in the final stages and the plan was to finalise the transaction by early April but the coronavirus outbreak had slowed down things a little, said another source.
Responding to Moneycontrol queries, Edelweiss Financial Services confirmed that it was in discussions with investors for the advisory vertical as well as the credit group.
“As part of our ongoing strategic growth plan, outlined and initiated in 2017, three Business Groups - Credit, Advisory & Insurance – were created based on synergies, aligned consumer segments and complementary platforms. These independent entities would have their own strategic investors and be well capitalised,” it said.
Following the completion of the fund-raising process, the group was planning a restructuring exercise to unlock value for shareholders, sources said.
“A demerger of the EGIA vertical is on the cards at a later stage, following which the group is keen on getting this arm listed separately,” a third source told Moneycontrol.
In September 2019, rival IIFL group’s arm, IIFL Wealth Management, made its debut on the bourses, becoming the first standalone wealth management company to list in India.
The advisory business of Edelweiss includes asset reconstruction, wealth and asset management and the institutional client group.
It has commitments of $125 million from US-based Kora Management and $75 million from Sanaka Capital, of which $44 million has been received. Tokyo Marine has a joint venture (49% equity) with the loss-making insurance vertical, which is a drag on the consolidated revenues.
The credit business has a commitment of $250 million from Canada’s CDPQ, of which $150 million has come in.
The Edelweiss Group’s ambitions of running a bank are well known and it even applied for a banking licence but was unsuccessful.
“The promoters and the investor CDPQ are keen on more focus on the retail segment and therefore, reducing the wholesale book will be a priority. Eventually, the credit business as well will get demerged and make an attempt to become a bank,” said the first source cited above.
In February in an earnings call with analysts, the management highlighted its plans to reduce the wholesale book, strengthen the balance sheet and manage liquidity.
Chairman Rashesh Shah said liquidity conditions had improved, adding that the firm had “more than 10,000 crores of liquidity, which is about 22% of our total balance-sheet size”.
Edelweiss’s exposure to the real-estate sector has made investors jittery and a downward trend has also been seen in peers IIFL group and Aditya Birla Capital.
It was currently engaged with investors “to sell down our corporate credit book in the Credit BG. Despite these current challenging times, we are finding that global investors still have the hunger for good quality operating and yielding assets”, the company told Moneycontrol.
“Likewise similar talks are ongoing for our Advisory business (Edelweiss Global Investment Advisors) that has seen two previous infusions, a few months ago. We will continue to do what is in the best interests of our investors to unlock value, including listing the operating companies at the appropriate time and in consultation with our partners,” it said.
In the third quarter, Edelweiss posted a 92.61 percent year-on-year (YoY) drop in consolidated profit at Rs 16.71 crore. The firm reported a profit of Rs 226.11 crore in the corresponding quarter last year but its consolidated debt-to-equity ratio improved to 2.9 times against 4.20 times in the quarter.