Private equity (PE) fund Bain Capital is refinancing the debt it had borrowed for investments in Axis BankNSE 0.08 % as it prepares to convert warrants into shares, hold its marquee investment for a longer period and reduce funding costs, which will help it increase returns on its investments, four people familiar with the deal said.
“PE’s routinely borrow from banks to invest in shares. This money was borrowed to invest in Axis Bank. Now that this investment has done well, the fund wants to borrow for a longer tenure and hold on to its investment,” said one of the persons cited above.
Bain Capital through its investment arms, BC Asia Investments and Integral Investments South Asia, had led an equity infusion of a total of $1.8 billion in Axis Bank in November 2017. The US-based PE firm had invested $1.05 billion on its own to acquire a total of 87.5 million preference shares and 40 million convertible warrants in Axis Bank. It currently owns more than 3.40 per cent in the bank and can hike its stake to 4.87 per cent of expanded capital after converting warrants into equity.
PE firms usually invest through their own funds and also borrow from banks to invest in companies. The interest they pay on these loans is usually expected to be made up by the returns generated from these investments. Since Bain bought the shares in November 2017, the Axis Bank stock has risen to Rs 761 per share from Rs 544, giving the private equity company a handsome 40 per cent returns on its investment.
“This investment has paid off for Bain so its no surprise that it wants to hold on. They are also looking to exercise the warrants issued, which will be done through fresh loans. The initial borrowing was for just $300 million, which was subsequently expanded. The tenure of this new loan will be more than four years and we expect Bain to raise $600-800 million for this deal,” said a second person cited above.
A Bain spokesperson declined to comment.
The new loan is likely to be shared between four foreign banks. The initial loan was given wholly by JP Morgan. “This transaction is still in the works but is expected to be completed later this fiscal,” said another person cited above.