DBS loses US$17 million in its 4-year affair with Cholamandalam

April 1, 2010
Singapore Democrats

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Pallabika Ganguly
MoneyLife.in

The foreign entity had spent Rs213 crore in June 2006 for a 37.5% stake in the Murugappa Group’s non-banking finance company

Development Bank of Singapore (DBS) had spent Rs213 crore to buy 37.5% stake in the Murugappa Group’s non-banking finance company, Cholamandalam Investment and Finance Company Ltd, in 2005-06. Yesterday it exited from the joint venture at Rs129 crore, making a straight loss of Rs83 crore.

This is not the first time when a foreign company which has jumped into the Indian financial sector has burnt its fingers. Earlier, mutual funds companies (like Threadneedle), broking companies (James Capel, Peregrine) and banks (BNP Paribas) have entered into India and exited at a loss. Some of them like BNP Paribas find India irresistible and have come back again.

According to a news report in 2005, DBS announced that it would spend about Rs228 crore to acquire 37.5% stake in the company. It actually acquired 142,21,985 shares at Rs150 in June 2006 as per its filing to the Bombay Stock Exchange. It was a strategic stake sale for Cholamandalam as well. The Murugappa Group was planning to gradually exit the financial services business and focus on fertilisers and other manufacturing activities.

A few months ago, both DBS and Cholamandalam sold their stakes in DBS Cholamandalam Asset Management to L&T Finance for Rs45 crore. It remains to be seen whether the Murugappa Group would like to invite another foreign company into Cholamandalam Finance for another round of musical chairs.

The music starts during a market boom when foreign companies suddenly focus on India as the next hot destination. DBS partnered with Cholamandalam to grow the personal finance business, asset management business and also the banking business for which it launched 10 branches. After the collaboration, the foreign partner was expected to grow the financial services business by using its expertise in retail loans. But in a script that plays again and again, DBS on Tuesday announced that it is exiting from the joint venture with Murugappa in Cholamandalam. The reason was major delinquencies in the personal loan portfolio. In September 2008, after a huge hit to its portfolio, it had decided to stick to vehicle financing and loans against shares. In May 2009, the company was forced to create a provision of Rs200 crore against bad loans. Almost 75 branches across India were closed down and 200 employees were laid off.

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