HSBC has completed the acquisition of 93.86 per cent of retail brokerage IL&FS Investsmart Limited in India, for a total consideration of Rs1,311.0 crore (approximately $296.4 million).
Earlier in May HSBC announced that it would buy a 73.21-per cent stake in IL&FS Investmart for $241.6 million or around Rs1000 crore, for which it had offered Rs200 per share, a price almost at par with IL&FS's share price at close of trading on 16 May. (See: HSBC to acquire 73.21 per cent stake in brokerage IL&FS for Rs1000 crore)
Sandy Flockhart, group managing director and chief executive officer of HSBC Asia-Pacific, said, "Investsmart gives HSBC access to the world's third-largest investor base, with over 20 million retail investors. In fact, the business already has 143,000 customers and operates in 128 cities. With Indian GDP expected to grow by 7.8 per cent in 2009, the opportunity here is obvious and underlines why HSBC has a stated strategic aim of focusing on high-growth economies."
Under the transaction agreement, HSBC acquired 43.85 per cent of Investsmart from E*Trade Mauritius Limited, an indirectly wholly-owned subsidiary of E*Trade Financial Corporation, and 29.36 per cent from Infrastructure Leasing and Financial Services Limited (IL&FS). The decision to acquire a controlling stake in Investsmart triggered an open offer to public shareholders, through which HSBC has accepted shares equivalent to 20.65 per cent of Investsmart's capital.
E*Trade Mauritius Limited, IL&FS and those that tendered shares through the open offer received Rs200 per share for their Investsmart shares. In addition, IL&FS was paid, as part of a three-year non-compete agreement, Rs82.0 crore (approximately $17.9 million). In accordance with local regulations, HSBC paid interest of Rs2.3 per share to the public shareholders who tendered their shares. This amounted to Rs3.31 crore (approximately $0.72 million).
Naina Lal Kidwai, group general manager and CEO, HSBC in India, added, "Investsmart is a great addition to our current operations, which already constitute the second largest foreign banking network in India. We look forward to working with Investsmart's management team and growing this business."
HSBC's interest in tapping into the market of growing number of Indian investors is part of its expansion strategy in the world's fastest growing major economy after China. There is also huge potential for further growth, considering only 4 per cent of the country's savings is currently invested in equities.
HSBC was advised on the acquisition by the investment banking division of HSBC Global Banking and Markets.