Warburg begins to exit Kotak Bank

MUMBAI: Private equity giant Warburg Pincus has started exiting Kotak Mahindra Bank through share-sale in the open market. Warburg, managing assets worth $30 billion globally, held 9.28% stake worth around $700 million in the country's new generation private sector bank, which it entered seven years ago. Warburg sold 1.88% during firstquarter this fiscal and plans to cut the stake further as it embarks on a phasedexit, said sources familiar with the matter. The fund is poised to reap almostfour fold returns on the investment at current market valuations, they added.The fund mopped up around $150 million or closer to Rs 650 crore from its recentstake sale. It now holds 7.40% stake in the bank. Kotak Mahindra Bank was thefirst and the biggest financial services play for Warburg Pincus in India, whereit first picked up 2.75% stake for Rs 75 crore in 2004.Sources saidWarburg's exit was not unexpected since the investment was almost seven year-oldand ripe for a private equity value unlocking exercise. Warburg, one of theearly private equity investors in the country, has backed several emergingbusiness conglomerates like Bharti Airtel from which it scripted a blockbusterexit. A Warburg Pincus spokesperson declined to comment on the firm's investmentactivities as a matter of policy. Kotak Mahindra Bank spokesperson confirmedWarburg's part stake-sale but declined to comment on the fund's future stakesale plans.Warburg's relationship with the Kotak Mahindra Groupdates back to the mid-'90s when it started establishing Asian presence. Kotakassisted Warburg in developing the investment thesis for the region,specifically India, besides discussing opportunities to work together. Theopportunity finally came soon after Kotak Mahindra received a banking license inFebruary 2003. Warburg entered at a time the promoters led by Uday Kotak werediluting their holdings to comply with banking regulations.According to RBI rules, no single entity is allowed to hold above 5%stake in a bank in normal circumstances. But Warburg was given an exception bythe regulator five years ago. The group's flagship arm Kotak Mahindra Financewas the first non-bank finance company to convert itself into a bank. The banknow has over 230 branches over 718 ATMs and manages assets worth $11 billion. OnWednesday, the scrip closed 2.10% down at Rs 490.50 on the BSE. Warburg has beencutting stake in Max India, the holding company for Analjit Singh's insuranceand healthcare businesses. Last month, the fund also announced selling back16.37% stake in subsidiary Max Healthcare back to the promoter. Meanwhile, likeits global peers, Warburg has been active in striking new investment deals inIndia during the past 18 months.