India's PE-backed Capital First to merge with IDFC Bank

IDFC Bank will issue 139 shares for every 10 shares of Capital First. IDFC Bank’s stock closed at INR68.15 on January 12, giving the company a market capitalization of approximately INR229.3 billion ($3.6 billion). Capital First closed at INR845.00 for a market capitalization of INR83.6 billion.

Warburg Pincus paid INR8.1 billion for a 71.9% stake in the company – then known as Future Capital – in 2012, supporting a management buyout from Future Group. Two years later, it invested another INR1.78 billion alongside HDFC Standard Life Insurance. Last year, Warburg Pincus reduced its holding from 61% to 36%, generating INR17.7 billion by selling shares to GIC among others.

Capital First specializes in micro, small and medium-sized enterprise (MSME) and consumer financing, including home and vehicle loans, loans to salaried corporate employees and loans against property. As of September 2017, it had a loan book of INR229.7 billion – 93% in the consumer and MSME financing space – three million customers, and a distribution network of 228 locations.

The company reported revenue of INR27.3 billion for the year ended March 2017, up from INR18.5 billion the year before. Net profit grew from INR1.6 billion to INR2.2 billion over the same period.

The merger with IDFC Bank will create an entity with INR880 billion in assets, INR12.7 billion in net profit, five million customers, and a distribution network comprising 194 branches, 353 small business correspondent outlets, and over 9,100 micro ATM points.

IDFC Bank said the merger would complete its transformation from infrastructure financier to a diversified universal bank. Capital First also wants to become a universal bank. Vembu Vaidyanathan (pictured), who led the original management buyout of Capital First and serves as its chairman, will become CEO of the combined entity. Rajiv Lall, CEO of IDFC Bank, will transition to executive chairman.

“It has been a terrific journey over the past five-plus years watching Vaidya lead Capital First from a virtual startup to one of the premier retail and MSME financiers in the country. A merger with the IDFC platform that has been built by Rajiv and his team creates a powerful combination,” said Vishal Mahadevia, India head of Warburg Pincus, said in a statement.

The private equity firm, which closed its first dedicated global financial services fund at $2.3 billion at the end of last year, has previously backed the likes of HDFC and Kotak Mahindra Bank in India. Its portfolio currently includes Au Small Finance Bank, which went public in June 2017.

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• Topics
• South Asia
• Trade sale
• Financials
• India
• Warburg Pincus Asia
• Financial Services
• GIC Private