(Reuters) – Shares of India’s Manappuram Finance jumped 6% on Friday after analysts said that Bain Capital’s plans to buy an 18% stake and jointly control the gold loan provider will help ease its management succession plans.
U.S. private equity firm Bain Capital will subscribe to Manappuram’s shares and warrants at 236 rupees apiece, at a 9% premium over the stock’s closing price on Thursday of 217.5 rupees.
After the investment, which is valued at $508 million, Bain Capital will jointly control Manappuram with other large shareholders, termed as ‘promoters’ under Indian regulations.
Manappuram’s shares rose as much as 6.3% to 231.08 rupees – their highest level on record – as of 12:05 p.m. IST.
The company’s founder and CEO V.P. Nandakumar, who has been at the helm for almost four decades, will become the company’s non-executive chairman post the investment, it said on Thursday, with investors now eyeing nominations for the top role.
Bain Capital will also have the capacity to influence strategic decisions at Manappuram, including the right to nominate for the appointment of key roles, such as the CEO, which analysts at Jefferies and CLSA see as a key positive from the deal.
“We see the possibility of healthy re-rating in Manappuram stock as new management takes over,” CLSA analysts said in a note.
Jefferies and CLSA raised their price targets on the stock after the announcement by 14.6% and 20%, respectively. They have “buy” and “outperform” ratings on the stock.
The deal, which comes at a time when record prices have made gold mortgaging appealing, is expected to close in the next financial year and will aid growth in Manappuram’s gold loan business.
Gold loans contribute 75% of the company’s overall revenue.
Jefferies also said that a part of the capital raised from the stake sale may be utilized to absorb losses in Manappuram’s microfinance business, which was hit by uncertainty in market conditions and regulatory scrutiny.
Its unit, Asirvad Micro Finance would withdraw the IPO draft papers, Manappuram said on Thursday.
(Reporting by Manvi Pant in Bengaluru; Editing by Eileen Soreng)
