Reliance Capital CEO Sam Ghosh says he is interested in only a universal banking licence and that the partnership with Sumitomo Mitsui Trust Bank will continue irrespective of whether the company gets a licence or not. The alliance, he says, will help Reliance Capital look at various businesses such a real estate broking, real estate investment trust (REIT) and offering vendor financing and advisory services to the Japanese bank’s clients in India. Excerpts from an interview with Neelashri Barman.
When is the deal expected to close?
It may take maximum four weeks to close. We need to fulfill the regulatory guidelines for preferential allotment notice for extraordinary general meeting. Apart from that, we need approvals from others such as the Competition Commission of India.
Are you interested in a payment bank, small bank or a universal bank licence?
We are interested in applying for a universal bank licence and will wait. A universal bank fits in our existing clients portfolio which are mainly small and medium enterprises (SMEs). Small and payment banks are mainly for those companies having a large number of small ticket retail clients. So we it will not be a preferred option for us.
Why does the deal with Sumitomo have a one-year lock-in period?
As per the guidelines, in a preferential allotment, there is a requirement of a minimum lock-in. In our case both the companies mutually agreed to keep this period as one year.
You have termed the deal strategic. Why so? Also, apart from the money, what else are you getting?
After the Modi government took charge, India and Japan have come together in a major way for trade. We have seen increased activities between the companies of two countries and believe this momentum will gain pace. Our partner Sumitomo Mitsui has a large base of SME clients. We will be supporting their clients – looking at vendor FINANCING and advisory services – in India. Besides that we get to support mergers & acquistion activities for their clients who plan to come to India. We can help find their clients local partners in India. Sumitomo Mitsui is also a large player in real estate investment trust (REIT) in Japan and with their partnership, even we can probably build a REIT. Over and above that they are also into real estate broking business which will help us to venture into such avenues.
In case you do not get a banking licence, are there chances that the partner may exit?
No, it is a long-term partnership as we will collaborate with them across various initiatives – we will be looking after their clients, it shall help grow our M&A business as well as build REIT operations etc.
How will the fresh flow of funds help to reduce your debt?
Our current debt may be about Rs 5,000-6,000 crore and that will come down. Our debt equity ratio of 1:1.8 is one of the lowest in the industry. As a practice we usually use the sale proceeds in either reducing debts or scaling our business. Since the company is adequately capitalised and maintain a healthy capital adequacy of over 18%, we would use this proceeds to reduce debt. If required, we may consider further capital in the near future by way of preferential allotment or Qualified Institutional Placement (QIP).