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Investec’s India arm leads race to pick up stake in SBI Cap

Top officials of SBI and Investec held talks recently, but the structure of the deal could not be ascertained.

Nov 14, 2019, 08.15 AM IST
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Brokerage industry officials said the deal will put a question mark on the fate of the employees as both the firms have full-fledged teams
Mumbai: State Bank of India, the country’s largest lender, has set the ball rolling to sell as much as a 50 per cent stake in its institutional broking and investment banking unit SBI Caps, three people familiar with the development said. The local unit of South Africa’s financial services group Investec is a frontrunner to buy into SBI Caps, they added.

Top officials of SBI and Investec held talks recently, but the structure of the deal could not be ascertained. One option that has been proposed is merge Investec’s local business with SBI Caps with the South African unit holding 50 per cent. But SBI is inclined on a stake sale to raise cash and a merger may not actually work.

“SBI would like to do a partial stake sale and raise some treasury income,” said a person familiar with the talks. “The quantum of the sale is not decided, but the parent would like to hold a controlling stake.”

Email queries to SBI and SBI Capital Markets seeking comments on the story went unanswered. A spokesperson for Investec’s India arm declined to comment on deal talks with SBI. “Investec is committed to the India business.”

Investec set up its India business in 2010 offering institutional broking and investment banking services but it has been unable to break into the big league in the highly-competitive market here. An association with SBI Caps is expected to help Investec secure big ticket deals, especially those involving government companies.

“SBI wants to improve the expertise at its capital markets division. A partner like Investec can bring in global knowhow and SBI’s current team can bring in domestic experience with its monopoly on government sector contracts,” said another person aware of the discussions.

SBI Capital has emerged as the natural advisor to many deals thanks to its parent’s exposure to large corporates and dominant presence in most lending consortiums. The investment bank’s project advisory and structured finance group earned Rs 219 crore in 2018-19 as fee and was the frontrunner in several advisory and syndication deals. Its equity capital markets group collected a fee of Rs 10.35 crore last fiscal after it helped companies raise Rs 6,201crore. Its debt capital markets team executed 36 non-convertible debenture (NCD) issuances with a total value of Rs 74,578 crore. For the financial year to March 31, 2019, SBI Capital Markets posted a consolidated profit of Rs 236.7 crore against a net profit of Rs 323.5 crore in the previous fiscal.

Brokerage industry officials said the deal will put a question mark on the fate of the employees as both the firms have full-fledged teams. SBI Caps has 285 executives, out of which about 73 per cent have been hired from the market, while the rest are on deputation from the parent. Investec India has about 100 employees. “If at all there is a deal, there will be significant overlap of roles and functions. A lot will depend on who gets to run the show,” said the chief executive of a rival institutional brokerage.

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