Religare may buy AIG Investments for $500 million

Aug 19, 2009

Religare may buy AIG Investments for $500 million

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This story is draft.

Religare has ramped up its AUM to Rs 10000 Crores after picking up the flailing Lotus Mutual Fund. Its recently launched Fund schemes have not had extremely positive reviews from the market but it has managed to climb to a Top 15 position in this boom season for Mutual Funds. Its bid for AIG investments, currently at $300 million, may be seen positively by the promoters in this light. However AIG investments had only Rs 1500 Crores when news of its sale started in India making it expensive at anything more than Rs 300 Crores ( $62.5 million).

As a comparison in the global market the ETF specialist BGI was sold for only 1% of its assets a couple of months back and the market has not moved much since, effectively retracing all talk of it being sold at a discount in the next three months. While the fund values for AIG Investments are of the order of $85 billion, they are nowhere in the Top 20 and are one fourth the size of the top industry AUM grabbers led by Blackrock Global Investors and State Street and the valuations beyond $425 million would seem stretched at this stage. The final purchase price of $600 million may not be comparable to what a Fund manager of Blackrock’s calibre paid for Barclays as the latter is much more sure-footed and is already delivering results getting a plug n the run on its funds and managing $44 billion in additions in May 2009

Sunil Godhwani may also have his hands full from initiating the Macquarie JV in Wealth and the Aegon JV in Insurance which are already spread across 450-550 towns. The bid may be a tough one with Crestview and FT/Temasek having come in early and brought expectations to $300 million, but neither the fund performance in all retail and institutional sectors except Private Equity, nor AIG’s current frenzy to get rid of $80 billion of equity and Another $100 billion in stimulus and equity funds from the government can be discounted away for a higher price from Religare at this juncture.

Malvinder and Shivinder have their pockets lined with cash after the sale to Japanese pharma company Dai Ichi. With AIG having taken its investment out of the outsourcing unit (sold to Mphasis) and the other 5-6 sales completed in the last 6 weeks, AIG will have to slow down its bids for sale in AIA ( Asian Insurance business) and Chartis ( 20% stake up for sale) and probably the Global Investments unit

On the other hand out of the $2.2 bilion the brothers received, they have already spent a $100 million on the purchase of a London based Financial Advisor, paid their taxes of around $200 million, and set up the Life Insurance and Wealth management Companies which may each require well over $400 million for their expansions in the targeted 500 odd towns in India. This purchase is the likely crown jewel along with the other purchases for Religare Enterprises and Vistaar Entertainment and other investments like Religare Technova ( Asian CERC Content and IT platform businesses) together would account for almost all their cash. Depending on the IPO market would anyway be required at a later stage in the expansion of these services. I would assume they would like to keep at least 30% or $600 million of their cash safe for such expansion later.

They have to think – Does $2 billion make a new Financial Services Empire? Can they afford to start with an empty pocket overnight?

AIG on the other hand has been stuck with proposals to sell $20 billion worth of AIA and ALICO Life Insurance in Asia, and another 20% in its restructured Chartis business (P&C) and is not likely to get a price that will pay off the expected debt out of the $80 billion outstanding. They have however made proprietary profits to pay off $2.67 billion in the 2nd Quarter, which is not much considering its global assets in life are $560 billion !!