Infrastructure Leasing and Financial Services (IL&FS) is in exploratory talks to sell a controlling stake in its capital markets arm, said people directly aware of the matter. They said a sale isn’t certain. The infrastructure developer and financier is seeking Rs 600 crore for its 80% stake in IL&FS Securities Services, which offers derivatives clearing and settlement services to as many as 1,000 stock brokers.
Among those approached are said to be US based funds services and investment management giant State Street Corporation and the growth capital arm of private equity fund Carlyle.
Avendus Capital is mandated to arrange a possible sale.
Japan’s Orix Corporation, a shareholder in the parent company, owns about 5% in the securities services business. Croupier Prive, a US-based fund, has a 5% stake. The remaining shares are held by the IL&FS Employee Welfare Trust.
An IL&FS spokesperson said the company does not comment on speculation. Orix declined to comment. Croupier Prive could not be reached for comment. The proposed sale is in line with the IL&FS strategy to divest non-core assets and ‘recycle’ capital into its core infrastructure business, a person aware of the company’s thinking said. IL&FS sold its fiduciary services business housed in IL&FS Trust Co. to Hong Kong’s Vistra Group for an undisclosed sum earlier this year.
Carlyle declined to comment. State Street did not respond to ET’s queries. “The clearing and settlement business offers high margins and requires minimal capital expenditure so it is not uncommon for such businesses to fetch valuations as high as 8-10 times operating profit,” said an investment banker not associated with the transaction.
IL&FS Securities Services posted revenue of approximately Rs 320 crore and profit before tax of Rs 70 crore in the year to March.
The bulk of the revenue was derived from clearing and settlement of derivative trades, though it also provides other services including electronic storage and safekeeping of securities, securities lending and borrowing and loans against shares to its customers. It has a revenue-sharing arrangement with its parent for the lending business.
Average daily turnover in equity futures and options segment on NSE amounted to over Rs 2 lakh crore in FY15, according to its website. Fees for clearing and settlement services are linked to the value of transactions processed. IL&FS recently announced it would raise Rs 5,000 crore through various group entities via rupee denominated bonds over the next six months.
Recent Articles on M&A
Source: Economic Times
