HDFC Ltd has signed definitive documents for the proposed disinvestment/sale of approximately 90 percent stake in its education loan subsidiary HDFC Credila to a consortium of private equity firms BPEA EQT and ChrysCapital for around Rs 9,060 crore, the mortgage lender said in a disclosure to the stock exchanges.
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, the report had added.
Read: MC Exclusive | Race for HDFC Credila: BPEA EQT, Chrys Capital & Faering Capital consortium in the lead
The deal is subject to regulatory approvals and dispensations (including the RBI and Competition Commission of India) in connection with the Proposed Transaction and continuation of HDFC Credila’s business.
"Pursuant to the Proposed Transaction, HDFC Credila will cease to be a subsidiary of the Corporation, and the Corporation’s shareholding in HDFC Credila will be less than 10% of HDFC Credila’s total issued and paid-up share capital," the announcement added.
According to the deal terms, HDFC shall have the right to nominate 1 non-executive nominee director on the board of HDFC Credila on terms as agreed under the Shareholders’ Agreement and the firm shall have customary pre-emptive rights under the Shareholders’ Agreement.
Management view
Jimmy Mahtani, Partner and Head of BPEA EQT India, commented, “The demand in India for obtaining a higher education is growing at a faster pace than ever, accelerated by our country’s growing middle class and students’ strive for better career opportunities. Coming out of HDFC Group, one of India’s most respected and well-established financial conglomerates, HDFC Credila plays a critical part in serving this demand. We have been following HDFC Credila for several years and we are excited to partner with its strong management team led by Arijit Sanyal.
"We also welcome HDFC Group’s decision to retain a minority stake in the business and we see their continued support as a testament to our vision for the company. Looking ahead, BPEA EQT plans to accelerate HDFC Credila's digital transformation and invest significantly in the Company's continued growth.”
Arijit Sanyal, CEO of HDFC Credila, said, “Having established ourselves as the largest NBFC in the education finance sector in India, we are delighted to welcome our new investors BPEA EQT and ChrysCapital. Our association with such marquee investors is expected to fuel the next chapter in HDFC Credila’s journey and enable us to scale new heights. We also welcome HDFC's decision to retain 9.99 percent stake in the company and look forward to our continued association.
"I would like to thank all our stakeholders and employees for their continued support. I am extremely optimistic about our future and look forward to the next steps.”
Sanjay Kukreja, Partner and CIO of ChrysCapital, commented, “ChrysCapital is excited to partner with BPEA EQT and help support HDFC Credila in its next leg of growth. Financial services has been a focus investment sector for ChrysCapital with more than a quarter of total deployments over the last 20 years and more than a third of realisations.
"This transaction is in tandem with ChrysCapital’s strategy to increase focus on buyout transactions across sectors. This transaction is the fourth investment and third buyout from ChrysCapital’s latest $1.4B ninth fund, and is also the fund’s second buyout in financial services after the investment in Bandhan Mutual Fund earlier this year.”
The domestic private equity firm put out a statement saying, "ChrysCapital-led funds plan to invest over $250M in HDFC Credila of the total $1.3 bn consortium investment."
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.
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.
A closer look at the acquirers
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.
The total revenue of HDFC Credila during FY 2022-23 was Rs 1,352.18 crore and its net worth as on March 31, 2023 stood at Rs 2,435.09 crore.
The Rs 9,060-crore buyout of HDFC Credila by the BPEA EQT and ChrysCapital consortium is the largest acquisition in the Indian financial services sector by private equity investors.
BPEA EQT was advised by Arpwood Capital, E&Y (financial, tax, ESG, and technology) and JSA (legal). ChrysCapital was advised by Arpwood Capital, E&Y (financial, tax, ESG, and technology) and Shardul Amarchand Mangaldas (legal) on the transaction. Jefferies acted as the exclusive financial advisor to HDFC Limited and HDFC Credila.
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