Crisil gets foothold in rival CARE with 8.9% stake purchase

MUMBAI: Credit-rating agency Crisil on Thursday said it had taken 8.9% stake in local rival Credit Analysis & Research (CARE), in what analysts said was the first step towards a potential acquisition of the company in the future.
Crisil, promoted by Standard & Poors, purchased 26.22 lakh shares at `1,659.79 from Canara Bank in a bulk deal executed early on Thursday morning, stock market data showed.More importantly , the `435.26-crore deal gives Crisil a foothold into a rival agency .

In a statement, CEO Rajesh Mokashi said his company wished to stay independent.

“Normally , I'd would be reluctant to comment in deals involving shares of CARE ratings. However, (this) seems to be a large and somewhat unusual transaction and therefore warrants a comment. We do know that a competitor is expressing strong faith in CARE's future prospects. However, we are the only Indian rating agency that is listed on the stock exchanges. And we wish to stay independent,“ Mokashi said.

According to bankers, Crisil is setting the stage for an acquisition.“There is no other logic except preparing the stage for a future acquisition. This makes Crisil the second largest shareholder in CARE behind LIC,“ said an investment banker who had studied CARE closely for a client.

The price of the share purchase was at a 10.65% premium to the `1,500 floor price set by Canara Bank in its bid document for the sale earlier this month. CARE shares reflected the increased valuations after the Crisil deal as its shares increased 11.79% at `1,596.85 apiece on the BSE. The shares had risen to `1,668.65 per share earlier in the day .Crisil shares gained 1.54% to end at `1,949.65 apiece.

In a statement, Crisil said the stake purchase was an investment opportunity for the company . “Crisil continuously evaluates investment options as a part of its corporate strategy . This stake purchase is an investment in the excellent longterm prospects of the credit rating sector in the country . The prospects for the sector are driven by the significant demand for capital investments and infrastructure financing in India over the long term, much of which should benefit the sector,“ the statement by MD Ashu Suyash said.

Bankers said the transaction is an interesting one because Crisil is considered a company with better prospects. “Crisil has diversified business with 13rd of the revenue coming from advisory services, so they are not as dependent on ratings as CARE is. They have a more premium offering and a better market perception for their ratings. So, in that sense this share purchase is just Crisil protecting its turf possibly for a future acquisition,“ said a banker familiar with both companies.