BREAKINGVIEWS-KKR sets Mizuho ostensibly ho-hum India bar

The author is a Reuters Breakingviews columnist. The opinions expressed are her own.

By Shritama Bose

MUMBAI, Dec 17 (Reuters Breakingviews) - Mizuho Financial's 8411.T push into India starts from a strong place. The securities division of Japan's third-largest bank on Wednesday said it will buy a controlling stake in boutique investment bank Avendus from KKR KKR.N for up to 81 billion yen ($523 million). The transaction will give it access to a capital markets boom in the South Asian country, but Mizuho will have to fight to better the U.S. buyout shop's dusty return from the sale.

KKR will exit Avendus by selling its entire stake of more than 60% to Mizuho's capital markets business, which has the option to buy other shareholders' holdings to raise its stake to 78.3%. Avendus' other owners include local private equity investor Gaja Capital and founders Gaurav Deepak and Kaushal Aggarwal.

For Mizuho, a concerted push into India, where it has had a subsidiary since 2020, makes sense as its compatriots from property developer Mitsui Fudosan 8801.Tto carmaker Suzuki Motor 7269.T are deepening their presence. Mizuho CEO Masahiro Kihara on Wednesday said the bank has been fielding an increasing number of inquiries from clients about expanding in India.

The sale will earn KKR a 10% dollar return on its $176 million investments made in 2016 and 2017, assuming it received no dividends. In rupee terms, the return is slightly better, albeit still underwhelming at 14%. Mizuho may have driven a hard bargain partly to account for Avendus' dependence on investment banking, which is seen as highly cyclical in India.

Mizuho will hope to reduce revenue volatility by furthering the boutique's diversification into other products: credit, wealth and stockbroking, which Avendus has been building through its 2022 acquisition of Spark Capital's institutional equities business. Its niche in serving new businesses from food delivery startup Swiggy SWIG.NS to eyewear retailer Lenskart LENS.NS could also help it corner a larger share of the advisory market. As the upstarts mature and their financing needs evolve, Mizuho's balance sheet could eventually help Avendus increase its wallet share with them.

That, though, could be a tall order in India's hyper-competitive market where 30-odd banks vying for mandates weigh on fees. Revenue is growing, but slowly, and initial public offerings this year, for example, earned banks around 1.7% of proceeds, according to Dealogic data, well below Hong Kong, where underwriters typically get up to 2.5%. Mizuho faces an uphill climb, but at least the bar for success is relatively low.

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CONTEXT NEWS

Mizuho Securities on December 17 said it will buy a majority stake in Indian investment bank Avendus from U.S. private equity firm KKR for up to 81 billion yen ($522.72 million).

The capital markets unit of Mizuho Financial Group said it will buy up to 78.3% of the company and make it a consolidated subsidiary.

(Editing by Antony Currie; Production by Shrabani Chakraborty)

((For previous columns by the author, Reuters customers can click on BOSE/shritama.bose@thomsonreuters.com))