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Billionaire Indian Banker Looks East

This article is more than 10 years old.

India’s Kotak Mahindra Bank, onetime partner of Goldman Sachs, has forged a new partnership with  Japan’s Sumitomo Mitsui Banking Corp.  In a deal announced Wednesday, Sumitomo is acquiring a 4.5%  stake in Kotak Mahindra for $294 million, through the issue of 16.4 million new shares.  The deal, struck at a 12% premium to Kotak Mahindra’s stock price, values the bank at $6.5 billion.

Billionaire banker Uday Kotak, who founded and runs the bank, says  this latest move signals a strategic shift.  “India’s financial sector has for far too long been Western-focused. It’s time we started looking at new avenues for growth, “ he elaborated.

Kotak said his bank will use the money raised from the sale to fund expansion and acquisitions.  “ We can create new revenue streams with Sumitomo, “ he added. “ India has tremendous growth opportunities.  Japan has high savings but low growth. There’s an obvious synergy there. “

The two partners have signed an agreement to collaborate on several business fronts including asset management, infrastructure financing – an infrastructure fund is in the works-and investment banking, notably on the debt side. Kotak said they would look at helping Indian companies to raise foreign funds and work with Japanese companies operating in India. “ The Indo-Japan corridor is emerging as very important.” he said.

Kotak’s initial impetus for the stake sale was to meet a regulatory requirement as mandated by the Reserve Bank of India, of reducing the promoters’ holding in the bank to below 49%.  The bank was originally co-founded by Kotak and tractor tycoon Anand Mahindra in 1985 as a small financial services firm which acquired a banking licence in 2003.  Post the deal with Sumitomo, Kotak will have 46% and Mahindra just under 3%.

Another big announcement could soon follow that of the Kotak-Sumitomo alliance. Reportedly, Reliance Industries is on the verge of forging a joint venture with D.E.Shaw, marking the entry of Mukesh Ambani in financial services, a sector that his younger sibling Anil already has a major presence in. Since the recent rapprochement between the two billionaire brothers which led to the the scrapping of a non-compete agreement between them, Mukesh has moved quickly. He stormed into telecom with the $1 billion acquisition of a 95% stake in Infotel Broadband which snatched a national licence for broadband wireless in a recent auction.  Apart from financial services, his next move, it is speculated, could well be in power.