Japan's Orix Corporation, which was in talks with Reliance Industries [ Get Quote ] (RIL) to sell its 23.87 per cent stake in Infrastructure Leasing and Finance Company (IL&FS), has bowled a googly.
Orix, the second-largest shareholder after Life Insurance Corporation (LIC [ Get Quote ]) in one of India's leading infrastructure developer and financier, is now keen to increase stake in the company. It has started talks with institutional shareholders in this regard.
An Orix spokesperson said over phone from Japan that the company had no plan to exit IL&FS.
"We can confirm that we are not selling our stake in IL&FS. We have been a business partner of IL&FS for several years and wish to continue the partnership," said the spokesperson.
Three financial institutions, LIC, Housing Development Finance Corporation [ Get Quote ] (HDFC [ Get Quote ]) and State Bank of India [ Get Quote ] (SBI), together hold a little over 45 per cent in IL&FS. Senior officials at these three institutions say they have been in talks with both RIL and Orix for selling stakes.
"For us it makes sense to sell as we have no intention to increase our stake. This (stake sale) gives us an opportunity to book profit," said a senior official of one of the institutional investors.
Orix did not comment on plan to increase its stake. "We don't comment on specific transactions," said the spokesperson.
IL&FS' strong performance over the past few years and the keen interest shown by RIL seem to have convinced Orix to stay on, say institutional sources.
On its part, RIL seems to have developed cold feet after initial enthusiasm. An RIL spokesperson refused comment, but RIL was till recently in talks with both Orix and the institutional shareholders.
"RIL was looking at a sizeable pie in the company. Hence, it was holding simultaneous discussions with all majority shareholders. If Orix does not sell, RIL will not be keen to acquire shares from other investors," said a source.
Orix's move, sources say, can deflate RIL's dream of a mega financial sector entry. IL&FS was believed to be an entry point for RIL into the high-growth asset management and infrastructure financing and development sectors.
Sources say RIL's decision to partner DE Shaw Group for financial services is a direct fallout of Orix's decision to continue in IL&FS. RIL and DE Shaw have not shared further details about the venture so far.
IL&FS closed financial year 2009-10 with assets of Rs 7,168.93 crore (Rs 71.68 billion). It was set up in the late 1980s by Central Bank of India, HDFC and the erstwhile Unit Trust of India to finance and develop infrastructure projects and offer value-added financial services.