A consortium of BPEA EQT, formerly Baring PE Asia, Chrys Capital and Faering Capital has emerged as the frontrunner in a big-ticket deal which is part of the Reserve Bank of India's requirement for the HDFC-HDFC Bank merger. The consortium is looking to pick up a majority stake in education loan provider HDFC Credila, multiple industry sources told Moneycontrol.
On May 22, Moneycontrol was the first to report that a Baring PE EQT led consortium was the frontrunner to pick up a majority stake of around 90 percent in HDFC Credila. The valuation expectation was around Rs 10,000 crore.
In April, ahead of the merger with HDFC Bank, the banking regulator directed HDFC to reduce its stake in subsidiary HDFC Credila to 10 percent within two years without onboarding new customers. Established in 2006, HDFC Credila is India's first dedicated education loan company.
" The transaction has received a lot of interest from several PE suitors. Currently, the combine of BPEA EQT, Chrys Capital and Faering Capital has an edge over others and is keen to join hands and acquire a combined 90 percent stake in HDFC Credila,” said one of the persons mentioned above. “If discussions progress well, a deal is likely to be signed in the next few weeks."
Two other persons also confirmed the development.
"There is too much reliance on the IT segment for Baring PE Asia and they are keen to grow big in other sectors as well like financial services and pharma and healthcare," one of them said.
A fourth person told Moneycontrol that HDFC was expecting a valuation of around Rs 10,000 crore for Credila, which, if sealed, would make the transaction one of the biggest by India Inc in 2023.
All four persons spoke to Moneycontrol on the condition of anonymity.
An email query sent to HDFC remained unanswered at the time of publishing this article. EQT declined to comment. Moneycontrol has sent reminders and is awaiting a response from Chrys Capital and Faering Capital. This article will be updated when we hear from them.
On May 2, 2023, news agency Bloomberg reported that HDFC had picked investment bank Jefferies for the sale process of HDFC Credila.
Recently, HDFC CEO Keki Mistry said the parent had received a lot of interest for a stake buy Credila and that the firm was likely to take a call by June.
“We are willing to look at reducing our stake in the company from 100 percent to 10 percent and a variety of people are calling and making bids, so we are still collating all that,” Mistry said in an investor call on HDFC's Q4 and FY 23 results.
Following EQT's acquisition of Baring PE Asia in 2022, BPEA was integrated with the EQT platform and is now known as BPEA EQT, operating as EQT's private equity business line alongside EQT's infrastructure and real estate businesses in Asia. It also holds a minority stake in private sector lender RBL Bank.
According to its website, in the financial services space, Chrys Capital backs the likes of Bandhan Mutual Fund, Hero Fin Corp and Varthana, which provides loans and services to affordable private schools in India.
Faering Capital's recent investments include Digit Insurance, Finova Capital and WheelsEMI and others.
Credila — The saga and stats
In November 2009, HDFC announced the acquisition of a 41 percent stake in HDFC Credila Financial Services, marking its entry into the segment. HDFC purchased the 41 percent equity from DSP Merrill Lynch Capital Ltd, an Indian subsidiary of global financial services major Merrill Lynch. Then in December 2019, the mortgage lender took complete control by acquiring a 9.12 percent stake from the promoter Bohora family, valuing the entire company at Rs 4,331 crore.
According to reports, HDFC Credila has extended loans to 1.2 lakh customers. In FY23, its gross loan assets grew 73 percent year on year to Rs 15,298 crore, with PAT at Rs 276 crore and a net interest margin of 4 percent.
According to its website, the firm has funded Indian students going to 50 plus countries, more than 3,400 institutes and studying 1,800 different courses.
"Unlike banks, which typically charge a fixed rate for a certain category of students, HDFC Credila has a range of rates depending on the institute, co-borrower details, collateral security offered and the academic background of the student," the website says.
Credila provides an education loan approval letter even before the student gets confirmed admission with the real loan getting disbursed later, the website adds.
According to a February 10 report by Care Ratings, non-banking finance companies (NBFCs) almost doubled their market share in retail education loans (edu retail) in the last two years from 9.9 percent in September 2020 to 18.6 percent in September 2022. Retail education loan AUM of CARE-rated NBFCs increased from Rs 7,738 crore as on September 2020 to Rs 17,877 crore as on September 2022.
"The growth rate is expected to remain strong during FY23 aided by an improved demand scenario for overseas education among Indian students. Though growth rates may moderate in FY24 due to the base effect, evolving changes in the industry, especially on the demand side, are likely to support double-digit AUM growth," the report added.
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