Credit Shopping: Is Experian buying 26% stake in High Mark ...

Experian has made a bid to buy minimum 26% stake in High Mark, the debt ridden and cash strapped credit bureau in India. The question is whether RBI would allow the credit information company to buy stake in similar venture

Experian Credit Information Company of India Pvt Ltd (Experian India), one of the four credit information companies (CICs) in India licensed by the Reserve Bank of India (RBI), has made a bid to buy minimum 26% stake in troubled and cash-strapped High Mark Credit Information Services Pvt Ltd (High Mark), say our sources.

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According to the sources, Experian India has quoted Rs25 per share to buy 26% stake in High Mark and has already completed due diligence. Earlier, High Mark was negotiating with Italy-based CRIF credit bureau for a bailout. High Mark was offered Rs30 per share by CRIF, which is also an existing shareholder in the credit bureau. CRIF SpA owns 9.09% stake in High Mark. We learned that CRIF executives had already met senior executives of RBI to assure them of support and continuity after takeover. However, the banking regulator, because of its reservations about CRIF?s ownership pattern, rejected the proposal.

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Richard Fiddis, managing director for strategic markets at Experian PLC, however declined to comment on the stake purchase. He said, ?Indeed, Experian India?our JV credit information company is going through the process of recapitalization as per our original funding plan for the business and Experian as the cornerstone investor has already contributed its share of the recapitalization funds.?

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Experian India is a joint venture of UK-based Experian with Axis Bank, Federal Bank, Indian Bank, Magna Finance, Punjab National Bank, Sundaram Finance and Union Bank of India.

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At present, foreign direct investment (FDI) in a credit bureau is capped at 49% and any transfer of more than 5% of shares requires approval from the RBI. Similarly, institutional investment in a credit bureau is capped at 10%.

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According to sources, CRIF had offered to buy 26% stake in High Mark at Rs30 per share or about 3.4 million euro. The offer was valid only till 31 December 2012. Among the investors of High Mark are stock speculator Rakesh Jhunjhunwala (4.55%) and financial services company, Edelweiss (9.09%), apart from a host of banks and a few financial services companies. They have subscribed their shares at Rs12.25 apiece.

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In addition, CRIF had said it would not block the initial public offering (IPO) of High Mark, if other shareholders also agree either to guarantee a loan, make a direct loan or invest similar amounts that of CRIF (Rs30 per share or 3.5 million euro), in case the Indian credit bureau needs funding.

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CRIF is headed in India by old hand Larry Howell. In his previous innings, Howell successfully brought together TransUnion, which he was heading at that time, and Credit Information Bureau (India) Ltd (CIBIL), India's first credit bureau.

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The other three RBI approved credit bureaus, CIBIL, Experian India and Equifax Credit Information Services Pvt Ltd (ECIS) have received funding of around Rs50 to Rs75 crore and have access to additional funds through promoter or parent company which are large organisations specialising in credit information business mainly in the US and UK.

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Earlier, while admitting that High Mark was looking to raise funds from domestic and foreign investors, its promoter Prof Dr Anil Pandya said, ?Only CIBIL has funds. The other two (Experian India and ECIS) are also in the market raising funds. Deep pockets and ample sources of funding do not help because of the regulatory constraints on capital structure of CICs.?

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Prof Dr Pandya, who lives in the US, had tried to rope in a foreign rating agency to put in additional capital. However, it did not materialise. This time he was reportedly negotiating with an Indian credit bureau for the asset sale to circumvent any regulatory permissions.

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High Mark was negotiating with other credit bureaus to do an asset sale including 250 million records collected from member institutions, says a complaint filed by a former employee of the credit bureau to the finance minister, RBI governor D Subbarao, secretaries from the finance ministry and financial services.

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The ex-employee pointed out that due to mis-management or absence of any management, High Mark, is at a stage where its existence is at stake. ?This in turn jeopardizes the valuable records of various financial institutions including public sector banks, cooperative banks, micro finance institutions, etc. This also is a gross violation of the Credit Information Companies Regulations Act, 2005 (CICRA), as the data is collected after signing individual agreements with member institutions. The asset sale is being designed in such a way so that it would not require any approval from the RBI,? the former employee said.

Source: http://www.moneylife.in/article/credit-shopping-is-experian-buying-26-stake-in-high-mark/33154.html

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