BPEA EQT and ChrysCapital will acquire a 90% stake in the education finance arm of Housing Development Finance Corporation, HDFC Credila, for 90.60 billion rupees ($1.11 billion), representing India’s largest-ever private equity acquisition in the financial sector.
The move comes as more investors bank on the country’s ambitious middle class and growing number of foreign students, potentially pushing total spending to $75 billion or $85 billion by 2024, according to Credila’s annual report.
The deal will also help the mortgage lender comply with mandatory regulatory requirements ahead of its $40 billion merger with HDFC Bank, which is expected to close next month. The Reserve Bank of India has asked HDFC to reduce its stake in HDFC Credila to 10% within two years of the merger taking effect.
“This is a win-win deal for HDFC and private equity firms,” said Kranthi Bathini, equity strategist at WealthMills Securities. “These private equity firms are betting heavily on India’s long-term proposition and a favorable demographic dividend that will further boost the education loan market.
Besides the acquisition of HDFC Credila, the private equity firms will also infuse Rs 20 billion in primary funds.
BPEA EQT brings together the private equity teams from Baring Private Equity Asia (BPEA) and EQT Asia. BPEA is one of Asia’s largest private equity firms managing over $22 billion, while ChrysCapital is a leading Indian player in this space.
Monday’s deal is the private equity firm’s second investment in education loans in India this year. In January, Kedaara Capital invested about $100 million in education lender Avanse Financial Services, also backed by Warburg Pincus.
The number of Indian students opting for higher education abroad has been on the rise, with the US, UK and Canada seen as favorable destinations.
According to Credila’s annual report, growth in the number of international students increased by 68% year-on-year in 2022 and was more than six times higher than the number of Indian students in the past three years.
Outstanding education loans from Indian banks also rose 18% year-on-year to April 21, compared with a 6.2% rise in the year-ago period, backup data showed. Bank of India.
After the stake sale, HDFC will retain a 9.99% stake in its education finance unit, which has provided loans to more than 1.24 lakh customers since its inception in 2006.
Jefferies acted as exclusive financial advisor to HDFC and HDFC Credila in the transaction, which is subject to approval by the RBI and the Competition Commission of India.
($1 = 81.9480 Indian rupees) (Reporting by Siddhi Nayak and M. Sriram in Mumbai and Indranil Sarkar in Bengaluru; Writing by Janane Venkatraman)
