Moses Harding John explains the rationale behind the proposed acquisition of Reliance Capital Ltd by IIHL with a cash offer of around Rs 54 billion. If he views the opportunity for Mauritius to emerge as an International Finance Centre as huge, at the same time, he opines that the journey towards this objective has just started. IIHL, he says, is positioning itself to attract global players to invest in East African countries.

IndusInd International Holdings Limited (IIHL) is in the process of acquiring assets of Reliance Capital Limited (RCL) which is under liquidation with a cash offer of USD 1.2 billion, (around Rs 54 billion). As CEO, what are the chances of taking over RCL and concluding the deal?
Reliance Capital Assets is one of the largest diversified listed financial services holding company in India, operating in life and general insurance, asset management and securities, investment banking & wealth management, asset reconstruction, housing finance, to name a few. It has today a workforce of over 18,000, a customer base of over 10 million and assets under management of more than USD 10 billion.

Emerging as the successful bidder, post stiff competition and legal hurdles are normally the first step of the process. The next one will be the acceptance of the bid by the Committee of Creditors of RCL to whom the bidding amount will pass through covering their liabilities in the company. Once approved, the transaction process will begin with issuance of performance guarantee by IIHL of around USD 60 million, representing 5% of bid value, approval of various regulatory bodies and the final clearance through the conclusion of the transaction by paying the bid price in full within 3 months to enable transfer of ownership of RCL. The entire process will be between 6 to 9 months for completion during the first quarter of 2024 and related processes are going smooth.

What has prompted IIHL’s interest in bidding for the acquisition of RCL, an Indian giant in the financial services sector?
IIHL was an early-bird in setting up a wholly-owned Indian new generation private sector bank in 1994 when banking sector got opened up to private sector to introduce straight-through-processing technology capabilities to eradicate the then prevailing cumbersome manual operations.

It was set up in Mauritius in 1993 for the purpose of acquiring a banking license, bringing capital and liquidity in foreign currency when US dollar was scarce with India’s foreign currency reserves down below USD 1 billion whilst RBI had to pledge gold to meet import obligations. Thus, came the launch of IndusInd Bank Limited (IBL) in April 1994. It was a pride moment then for Mauritius that a global business company registered in Mauritius setup and owned 100% by a private bank, driven by a new generation technology. The gains from IBL (IndusInd Bank Ltd) for IIHL have been significant since then, despite the promoter having in the meantime a diluted stake, from 100% in 1994 to 15% now due to changing regulatory prescriptions. The valuation of IIHL is currently around USD 1.5 billion against paid-up equity of around USD 40 million.

Having established a presence in the commercial banking sector, entry into para banking area is imminent to emerge as a widely diversified institution in the Banking and Financial Services sector (BFSI). The evaluation process of acquisition of life and general insurance together with asset management and security broking companies got triggered in 2021. The advantage in RCL is that all para-banking companies are available under one holding company except the asset management/mutual fund business, which is the missing piece, but which is not difficult to acquire. So, with the acquisition of RCL and an asset management company, IIHL’s presence in Indian BFSI sector will get completed, which could be expanded further into Africa through Mauritius. Besides, having Nippon Life Insurance of Japan as partner will necessarily add value to the acquisition.

How does the proposed acquisition of RCL fit in within the overall business strategy of IIHL?
The biggest benefit is from achieving diversification of revenue streams from multiple operating companies in the BFSI sector. Since inception in 1993, IIHL revenue has come from dividend from IBL which doesn’t add to the enterprise value of the company despite having a large book value. After being existence for 3 decades, it is right time to prepare for listing of the company to attract new investors and to provide exit to existing shareholders. To achieve this agenda, diversification within India BFSI sector and expansion beyond India in the India-Africa corridor is seen to be the only solution. To this effect, IIHL has already invested in 3 entities outside India – Mauritius based pan-Africa AFRINEX Exchange, Bahamas based Sterling Bank & Trust Limited, London based Investment banking & Wealth management company Beryllus Capital and hold a principal banking license for setting up a bank in Mauritius. So, the journey of diversification and expansion is gaining steam for moving towards desired objectives. To sum up, the agenda of diversification leading to capacity expansion within, and outside India is work in progress at good speed towards delivering best results for all stakeholders.

The Global Business Company, of which you are president and CEO, has been registered within our jurisdiction since 1993. Is this financial transaction, if it is finalized, will have positive bearing on the company’s operations in Mauritius?
We understand that it is late and IIHL could have done more being here for 3 decades holding significant balance sheet value and liquidity. But it is better late than never as Mauritius will emerge sooner than later, having already established presence through AFRINEX Exchange, to be followed by the setting up of a commercial bank in Mauritius and further expanding into BFSI sector. The valuation of IIHL will expand from USD 1.5 billion to around USD 3 billion in 3 years and further towards USD 5 billion target by 2030.

We will position IIHL as a priced Global Business Company (GBC) of Mauritius with increased focus on domestic businesses. The big-picture agenda, however, is not to restrict ourselves within Mauritius given the limited size of the economy but to position we in attracting global investors in major African economies in general but also in COMESA/East African countries in particular within the next 3-5 years. All these will add value to GDP of Mauritius in addition to generating employment and consumption and higher revenue to the Exchequer.

In a nutshell, please share the evolution of IIHL’s presence in Mauritius?
IIHL was established in 1993 when the Indian government opened up the banking sector to private non-corporate entrepreneurs that had the capability to launch technology -driven and cost and time efficient products and services. So as to upgrade customer service capabilities and efficiencies. The company was set up under the chairmanship of S.P. Hinduja, the eldest of the Hinduja brothers, who bid for the banking license through infusion of capital and deposits in foreign currency. The concept of “crowd funding” was established as the initial capital was raised from 600+ ultra-rich NRI (Non- Resident Indian) community in US dollars, which gave them the pride of being copromoters of an Indian commercial bank, topped up by foreign currency non-resident deposits. An amount of USD 250 million was lined up on the first day of operations, which is considered as a significant one given the fact that the foreign currency reserves was below USD 1 billion in 1993. Mauritius -based IIHL was the only foreign entity promoted as being wholly owned by a private sector Indian Bank. Since then, IIHL has provided necessary support for the growth of IBL which is now 5th in the private sector bank with a market cap of USD 12 billion & book value of USD 6 Billion against paid-up equity of USD 100 million. Now, the agenda is to bridge the gap with the leading 4 banks that have a market cap of over USD 50 billion with the presence of para banking assets around them positioning themselves as commercial and investment Bank. IIHL sees a huge upside here in the years ahead. This re-rating and value-build agenda is being led by Ashok Hinduja, Chairman of IIHL since 2016, youngest of Hinduja brothers based in India.

How do you view of the strength of the Mauritius jurisdiction and the role of its IFC as a gateway to Africa?
The opportunity for Mauritius to emerge as IFC of and for Africa is huge similar to Singapore and Hongkong that fuelled investments into China, India and South East Asia in the last 3 decades since early 1990’s. The growth and prosperity of Singapore and Hongkong in this phase is there to see for everyone. Africa sets up a similar opportunity for Mauritius and Dubai. But it does not come easy, as necessary capacity building has to happen to attract foreign play. The journey of Mauritius as an IFC is yet to begin and lots need to be done in attracting the entire value chain of Banking & Financial Services sector.

The first step in my view is to build and expand domestic economic capacity through Mauritius- based Global Business Companies that exist as investment pass-through from one country to another. A 25% contribution of GBCs in Mauritius will be the gamechanger for domestic capacity expansion to make it meaningful for others to follow. It should also be noted that foreign currency liabilities generated from GBC clients of Management Companies are invested outside Mauritius in segment “B” business.

The second step is expansion and deepening of Banking & Financial Services sector. The banking sector is dominated by MCB known for its stability and resilience with significant contribution to capital reserves from retained earnings and providing above par return on capital to shareholders. On the other end, AfrAsia Bank has established itself as smart and intelligent bank with more play on non-credit products and services without adding much risk weight on capital while delivering the best in class return to investors. Sandwiched between the two banks is SBM that has a significant domestic presence in retail, SME and parastatal businesses but struggling on profitability and return on capital from holding near zero reserves. It would need beyond these 3 banks to build economic capacity to fund expansion.

«There is lot of work to be done in the banking and Financial Services Sector to help emerge Mauritius as gateway into africa and to make this dream into a reality.»

It is important to invite strong regional banks in the Asia-Africa corridor and multinational banks from developed countries to make it work. The banking sector that adds fuel to economic capacity expansion need to be geared first whilst globalisation of banking sector will lead to bringing offshore investors and foreign businesses houses into Mauritius jurisdiction. On the non-banking financial services sector, it is less said, so much the better. The debt and capital markets capacity is below par, unable to attract issuers from Africa and investors from across the globe and the entire valuechain operations connecting the issuers and investors is missing. All combined, will lead to significant capacity expansion, adding value to all stakeholders of the system. The positioning of AFRINEX Exchange is to support Mauritius jurisdiction towards this agenda. There is lot of work to be done in the Banking and financial services sector to help emerge Mauritius as gateway into Africa and to make this dream into a reality.

Given the investment grade rating of Mauritius, high grade ease of doing business, good administration and governance, capital account convertibility regime, great living etc., Mauritius is well positioned to make the best use of emerging opportunities from Africa, which is the continent to look at for the next decade and beyond. This should be the top priority agenda for the Government.

Let’s come to SBM. You have been instrumental in the past by assisting it to have a footprint in Kenya’s banking industry. However today, there are lot of concerns raised on the group’s overseas strategy given the low return on investments in this African country. How do you respond to this issue?
I do not see it correct to comment on this issue now in 2023 when SBM Bank Kenya was set up in 2017-2018 starting the journey with above-par return on investments of 15-18% as at close of 2018 with clean balance sheet, high Capital adequacy ratio and low liquidity coverage & leverage ratios. This means that upside was kept open to push the return on capital to over 20% in the years ahead from higher profitability by expanding the productivity of the bank. When banking license was not available in Kenya, SBM brand got established as one of the top brands at par with KCB (Kenya Commercial Bank) delivering two first of its kind acquisitions not only in Kenya but in the entire African continent getting the goodwill of depositors, employees, Central Bank and the government. The agenda then was to encash the prevailing trust deficit in the system as depositors were scared to put monies beyond well-run banks, because of which tier-1 banks cost of deposits was as low as 4-5% when 3-12 months sovereign yield was at 10-12% and medium-long term yields at 14- 16%, thus providing amazing risk adjusted return on capital for well-established sovereign brands like SBM if only retail & wholesale deposits acquired at low cost got invested in credit risk free sovereign bonds while building focus on cash flow generating trade finance business and non-credit products & services in the areas of trade & investments leveraging on the operating infrastructure cutting across India-Kenya jurisdiction through Mauritius.

Needless to say, that the value of 2 banking licenses acquired in 2017-2018 is huge when SBM Holdings was high dependent on one-point revenue stream from SBM Bank Mauritius and setting up of operating companies in Kenya & India for additional revenue streams is to bridge the book value & market cap of SBM Holdings with MCB, the undisputed leader in this jurisdiction.

I am confident that SBMH having established a 4-pillar revenue stream structure from 3 banks (Mauritius, Kenya and India) together with the NBFC cluster providing the para-banking support to customers of the banks. I am also sure that these operating assets will deliver value to SBM Holdings if managed well, like how IBL delivered for IIHL, while SBM enjoying the advantage of being a sovereign brand over the private sector brand of IIHL.

To cut it short, SBMH is a raw diamond having a holistic & unique presence in Banking & Financial Services sector with direct coverage of India-Kenya jurisdiction and it would only need good management bandwidth to polish the diamond to enhance its value!