Second-largest India exit for Warburg Pincus

The global private equity firm has just completed its second largest exit in India - after that of Bharti Airtel, which it sold for $1.83 billion - but when it first entered into Kotak, it was dealing with an entirely different animal. At that time, the company was primarily a capital markets-focused player and Managing Director Uday Kotak and his team were looking to transform it into a full-service integrated financial services firm.

"Kotak actually received a banking license to create and grow a commercial bank and when Warburg first invested it was very early in that process," says Mahadevia.

Warburg paid INR759 million ($14.9 million) for an initial 2.75% stake in Kotak Mahindra, as part of what represented its first - and largest to date - investment in the financial services market. It went on to extend its stake via multiple investment tranches to become the second largest shareholder after Uday Kotak himself, with almost 10% of the company.

Since 2004, Kotak Mahindra has grown its employee base by around six times to more than 24,000 and it now services nine million customers across 300-plus branches. It has also grown its assets more than sevenfold to in excess of $15 billion. This progress ultimately led Warburg to begin divesting its stake in 2011. "The transformation has now occurred, so it was appropriate to exit - both from a fiduciary perspective to our investors as well as to make sure a more diversified set of investors were brought in who would be there for the next stage of growth," says Mahadevia.

A 1.88% holding in the company was sold down in the first quarter of last year for $150 million, providing the vendor with a 4x money multiple on its investment, according to the Times of India. Warburg declined to comment. In February, the firm raised about $170 million by selling a further 17.5 million shares, ostensibly to Vontobel Funds, Blackrock, Deutsche Securities, ICICI Prudential AMC and SBI Life.

The final 3.6% stake was offloaded last week to two funds managed by UK-based investor Geneses, Geneses Emerging Markets Investments and Geneses Group Trust. The sale, which was managed by Kotak Securities, raised a total of INR14 billion.

As Warburg is one of several PE firms to have divested stakes in Indian financial institutions of late, the firm's exit at this time is seen by many as an attempt to capitalize on the recent revival in India's stock markets.

Mahadevia, however, is adamant this wasn't the motive: "We've been exiting our stake in Kotak through a series of tranches dating back to last year, so this is not a decision that was driven by a temporary jump in financial markets. It was a longer term decision that was the right thing for the company."

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• Topics
• Exits
• Financials
• South Asia
• India
• Sell down
• Exit
• Warburg Pincus Asia
• Financial Services