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Merrill Lynch will accelerate and expand its commitment of capital and management to its Indian investment banking joint venture after paying US$500m to gain a controlling stake in the unit, the largest such transaction in Indian capital markets.
The US bank's acquisition of an extra 50 per cent stake in DSP Merrill Lynch takes its holding to 90 per cent and comes as global rivals such as Goldman Sachs and Lehman Brothers are strengthening their position in the buoyant Indian market.
Foreign banks are forecasting more lucrative advisory and lending opportunities in an economy where companies are raising capital expenditure to add, capacity and as rising prosperity ushers in a new generation of wealthy, young people.
Merrill Lynch said the deal would allow it to accelerate "the speed and execution" of [our] business plan over the next 10 years. "India becomes a greater priority when you own 90 per cent rather than with 40 per cent," said Kevan Watts, chairman of Merrill Lynch International, adding opportunities were ultimately subject to swifter de-regulation of capital markets.
Many foreign and local banks, for example, complain plans to launch 'non-banking finance companies' to offer lending products to people on low incomes were being delayed by a long regulatory process - holding back their expansion beyond urban areas.
Merrill Lynch is evaluating expansion into private equity -- the largest source of foreign capital into Indian companies by deal flow -- and setting up an asset reconstruction company to buy, repackage and sell bad assets.
Observers said Merrill Lynch might strengthen the joint venture's top management, weakened by the exit in recent months of two senior bankers to join rivals Citigroup and Carlyle, the US private equity firm.
The US bank will buy the extra shares from Hemendra Kothari, whose personal and family holding will fall to 10 per cent after the deal. Mr Kothari has emerged as arguably India's most influential banker, boasting deep personal relationships with the country's leading businesses such as the Tata and Birla conglomerates.
After the deal is completed early next year Merrill Lynch will take the company out of the public markets -- less than 3.0 per cent of the stock is owned by groups other than Merrill Lynch and the founders.
An asset management company 40 per cent owned by Merrill Lynch and the balance held by Mr Kothari and allies will be unaffected by the ownership change.
Mr Kothari will remain chairman of the joint venture and become vice-chairman of Merrill Lynch International, with his focus set to be on helping Indian companies expand overseas.
Under syndication arrangement with FE
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