Kolkata-based SREI Group is said to have initiated the process to acquire the asset management business of Essel Group — Essel Asset Management, sources told Moneycontrol.
“A term sheet has been signed between both the parties so far which is a part of due diligence process,” the source said.
A term sheet is a bulleted list, prepared by any of the proposing parties, enumerating some of the features as well as the terms and conditions of a contemplated business agreement.
However, the signing of a term sheet is not a definitive agreement and does not mean that the acquisition is final.
The terms and conditions contained in the term sheet are not binding to any of the parties, as they are subject to modification through further negotiations before the final agreement is actually prepared and signed.
The assets under management of Essel Mutual Fund currently stands at Rs 1,428 crore. If the market grapevine is to be believed the deal is likely to be done close to Rs 93 crore.
In 2016, Essel Finance Wealth Zone Private Ltd (EFWZ), a wholly-owned subsidiary of Essel Finance Management LLP, had acquired the entire shareholding of Essel Finance AMC, formerly Peerless Funds Management Company, and Essel MF Trustee Limited formerly Peerless Trust Management Company.
In a response to Moneycontrol’s query, a spokesperson for Srei Mutual Fund Asset Management Private Limited, said: “We do not comment on market speculations.”
DOES SREI HAVE DEEP POCKETS?
SREI Group offers a myriad of services in the infrastructure and capital markets space. Project finance, advisory and equipment finance are its key service offerings within the infrastructure domain.
Besides managing alternative investment funds (AIFs), the conglomerate is also into investment banking (for capital markets) and insurance broking (for corporates and individuals). The proposed acquisition of Essel Mutual Fund would complement Srei’s segments under financial services.
Srei Infrastructure Finance, the listed flagship entity of the SREI Group, had a net debt (total borrowings minus cash and bank balance) of Rs 28,105.19 crore as on 30th September 2018.
Considering this humongous debt pile up, it remains to be seen if SREI will leverage its balance sheet further, notwithstanding the miniscule transaction size (Rs 93 crore).
WHY ESSEL MF IS UP FOR SALE?
According to media reports, Essel Group, led by Subhash Chandra, is planning to monetise its non-media businesses amid concerns over debt repayment to its lenders.
In the next six months, the company plans to monetise about Rs 20,000 crore by selling its infrastructure assets.
Currently, at the group level, Essel has a total debt of Rs 17,174 crore. Of which, Rs 11,466 crore is the infra-related debt. This infra-related debt covers three major verticals — power transmission, solar and roads (toll and annuity).
The promoters had pledged their 59 percent stake in Zee Entertainment to raise money that served as equity funding in their infrastructure-related businesses.