Edelweiss prepares to list its alternatives arm

The IPO, which is partly aimed at reducing the parent company’s debt, is likely to be predominantly an offer for sale.

“Axis Capital is advising on the issue," one of the people said. “The company is expected to file its draft papers in a few months."

Edelweiss will table the proposal in its upcoming board meeting in October-end, the second person cited above said. “In the US, KKR, Blackstone, Apollo have all been listed, and the company is studying that," the person said.

Earlier, in an investor call on 5 August, Edelweiss group co-founder Rashesh Shah had said that a dual process of either a sale to an investor or an IPO was being considered for EAAA.

EAAA, which manages private investment vehicles across performing credit, structured credit, real estate and infrastructure yield, managed ₹56,342 crore of assets at the end of June 2024, according to its annual report for FY24.

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Axis Capital and Edelweiss did not respond to a request for comment on Monday.

Markets cautious

The company would need to win over investors who may wonder about the erratic nature of revenues in the alternatives business, some veterans said.

“Edelweiss can be bold enough to be first in this space, but the question remains if investors have the maturity to understand the value of such a business," said Abizer Diwanji, founder of Mumbai based consultancy firm NeoStrat Advisors LLP Services. “While a mutual fund does not have carried interest, investors will need to assess the carried interest of an alternate credit business."

Carried interest is the share in profits that an alternative fund manager receives after returning the principal capital and a nominal interest base to the fund's investors.

“Retail investors typically follow quality anchor investors in a public issue," said Arka Mookerjee, partner at J Sagar& Associates, adding that the disclosures around promoter and promoter group will need to be examined after analysing the cap table.

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“The regulator has been insistent on disclosures around the ultimate beneficial owners, and it needs to be seen if appropriate exemptions need to be sought given the unique asset class," Mookerjee said.

The fine print

The move to list EAAA follows an 18 December 2023 exchange filing when Edelweiss said it had started the process of selling 10-20% stake for ₹1,500-2,000 crore in its alternatives arm to try and retire debt at the parent level. This would suggest the company is expecting a valuation of at least ₹15,000 crore (around $1.8 billion).

To be sure, at the end of Q1FY25, Edelweiss Financial Services’ net debt stood at ₹12,700 crore, which it said was down 17% on a year-on-year basis. At its peak, the debt was closer to ₹50,000 crore.

“It took some time. Earlier some parts were owned by Edelweiss and we aligned them into one unit so that we can bring in an outside investor," the second person cited above said. “Now it's a standalone asset management business. All this got done by June."

In the exchange filing, it had said it received interest and expected to close the process over four to five months in a process that would also establish its valuation.

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Thereafter, on 5 August, Shah said in an investor call, “We are looking at a minority stake sale either through a private process or even an IPO, and very soon we hope that after evaluating all the feedback and the process we are getting from our bankers and consultants, we will be able to come back to you and highlight what is the best way to sell the stake, whether it's an IPO or it's a private process."

“We are currently consulting, and we hope that by 30 September, we will finalize our thinking on the best path forward and come back to all our stakeholders, including all of you, and update you on that. But EAAA is now an important part of our unlock going forward," he said.

Shah added in the call that EAAA has seen growth in its fee-based AUM (assets under management) and reported a profit after tax of ₹66 crore in the April-June 2024 quarter, compared to ₹46 crore in the same period last year.

He also said that after the group unlocked value in Nuvama Wealth last year, it still has seven other businesses that will eventually be independent, “either listed through a demerger or listed through an IPO".

Edelweiss Financial Services’ other businesses include mutual fund, asset reconstruction, non-bank subsidiary ECL Finance, Edelweiss Housing Finance, as well as its general and life insurance units.

Last year, Edelweiss sold a majority stake in its wealth management business (Nuvama Wealth) to investor PAG, subsequently de-merging the business from its listed entity as well as paring down its stake. EAAA is the next on the anvil, Shah had said in August.

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Edelweiss fully owns the alternatives arm through Edelweiss Securities and Investment Private Limited. The holding entity is Edelweiss Financial Services Limited (EFSL), which is listed. Shares of EFSL have risen nearly 30% over the past one month and closed at ₹142.18 at the end of trade on Monday, just a shade short of its 52-week high of ₹145.53 apiece.