People walk past a screen displaying news featuring on Adani Group inside the BSE building in Mumbai, India, on Thursday, Feb. 2, 2023.
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U.S. private equity group Bain Capital has stated that its recent acquisition of Adani Capital is part of its strategy to tap into the “underbanked” segment of India’s economy.
In July, Bain Capital agreed to purchase 90% of Adani Capital and Adani Housing, acquiring the entire private stake of the Indian billionaire Gautam Adani and his family in the company.
Bain Capital Special Situations’ Partner and Global Co-Head, Barnaby Lyons, stated that the deal will provide a crucial lending platform for India’s micro, small, and medium enterprises (MSMEs) – a rapidly growing market.
Lyons further explained that the structure of India’s economy, with a significant unbanked population, creates a need for innovative finance platforms like Adani Capital. He emphasized that the specific business of small lending to micro SMEs, the agricultural sector, and affordable housing benefits from favorable demand-supply dynamics.
However, Lyons mentioned that the granular nature of this lending makes it challenging for traditional banks to access.
According to Indian government data cited by Bain Capital, micro, small, and medium enterprises contribute approximately 30% to India’s gross domestic product. However, only 10% of these businesses have access to formal sources of credit to support their growth.
Rishi Mandawat, a partner at Bain Capital, stated in a press release that the Adani Capital team has developed a substantial lending business that addresses the significant unmet retail MSME credit demand in India, which amounts to over $300 billion.
Bain Capital has also committed to providing $120 million in primary capital to the company, along with an additional $50 million liquidity line in the form of non-convertible debentures.
Gaurav Gupta will continue as the managing director and CEO of Adani Capital, and he will retain a 10% stake in the company, according to Bain Capital.
Deal follows fallout
Adani Capital, the non-banking financial arm of the Indian conglomerate Adani Group, commenced its lending operations in April 2017.
Gautam Adani, chairman of the Adani Group, expressed his satisfaction with the involvement of a reputable investor like Bain Capital, believing that it will significantly contribute to the growth of the business.
The acquisition comes after a challenging period for Gautam Adani, who faced accusations from U.S. short-seller firm Hindenburg Research. Hindenburg released a report alleging the involvement of the Adani conglomerate in stock manipulation and fraud.
In response, the Adani Group vehemently denied the allegations, describing the report as a “calculated attack on India.” Nonetheless, the fallout resulted in a decline in Adani’s net worth following a shares rout in the company.
When asked about any influence of the Adani Group’s challenges on Bain’s decision, Lyons clarified that the acquisition of Adani Capital was unrelated to the wider Adani Group and that there were no significant connections between the businesses. He emphasized that Bain Capital, in partnership with Gaurav Gupta, will control and manage the business for the long term.
Bain Capital’s investment follows other international companies, such as GQG, raising their stakes in Adani’s conglomerate in May. The completion of the deal is subject to regulatory and market approvals and is expected to take place in the fourth quarter of this year.
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