US financial services major Bear Stearns is entering India by acquiring US automaker Ford’s financial arm Ford Automotive Finance Company. Bear Stearns, which is investing Rs 190 crore in the venture, plans to be a full-fledged financial services company covering institutional equities, fixed income, investment banking, global clearing services, asset management, private client services and other services allowed for a non-banking financial company (NBFC) in India.
Bear Stearns will acquire Ford Automotive from its parent Ford Credit International (FCI) for Rs 90 crore. FCI is part of Ford Credit, which is the financial services business of Ford Motor. Ford Credit is one of the world’s largest auto financiers and is particularly strong in the North American market.
After the Ford Automotive acquisition, Bear Stearns will invest at least $25 million (Rs 100 crore) to comply with Indian regulations. In a fund-based NBFC, foreign direct investment (FDI) up to 100% requires a minimum capitalisation of $50 million, of which $7.5 million is to be brought upfront and the balance in 24 months.
Bear Stearns had revenues of $16.5 billion with total assets of $350 billion as of November 2006. The fund was in the last month when two of its hedge funds filed for bankruptcy in the US. The hedge funds had built huge exposures in the sub-prime lending market, which basically represents mortgage to home buyers with poor credit history.
Analysts are now concerned about its impact on other financial markets including India.
What’s interesting is the route taken by Bear Stearns to enter India. Instead of starting operations by acquiring an existing securities firm, which is its core business, it is planning to buy an auto finance services company. Bear Stearns is already a registered financial institutional investor in India.
(Source: Economic Times )
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