Adani Capital acquisition opens access to India’s ‘underbanked’ market, says Bain

US private equity group Bain Capital said its recent deal to buy Adani Capital was aimed at tapping into the “unbanked” segment of India’s economy.

In July, the Boston-based firm agreed. to acquire 90% of Adani Capital and Adani Housing, buying Indian billionaire family Gautam Adani’s entire private stake in the company.

The deal will provide a crucial lending platform for India’s micro, small and medium-sized enterprises, a rapidly growing market, said Barnaby Lyons, partner and global co-head of Bain Capital Special Situations.

“Just the structurally underbanked nature of the economy means there is a … need for innovative financial platforms like Adani Capital,” he told CNBC.Asian street signs” Thursday.

“This specific business is in one segment — small micro-business lending, farm space, and affordable housing — that is actually benefiting from some of the best supply and demand dynamics.”

Despite structural growth trends in this segment, “the granular nature of credit makes it difficult for traditional banks to access,” Lyons added.

India’s micro, small and medium enterprises contribute about 30% of its gross domestic product. But only 10% of them have access to a formal source of credit to support their growth, Bain said in a statement, citing Indian government data.

In the statement, Rishi Mandawat, a partner at Bain Capital, said the Adani Capital team has “built a lending business at scale that supports entrepreneurship and is seeking to resolve MSME retail credit demand of over $300 billion in the country.

Bain also committed $120 million in Tier 1 capital to the company and an additional $50 million liquidity facility in the form of non-convertible debentures.

Gaurav Gupta will continue to serve as managing director and chief executive officer of Adani Capital and will retain the remaining 10% stake in the company, Bain said.

Adani Capital, the non-bank financial arm of Indian conglomerate Adani Group, began lending operations in April 2017.

“I am very happy that a credible investor like Bain Capital is stepping in now and this will help the business multiply from here.” Said Gautama AdaniPresident of the Adani Group, last month.

The deal comes after a tumultuous year for one of India’s wealthiest tycoons, who faced accusations of American short selling company Hindenburg Research.

It’s January 24, Hindenburg published a damning report accusing Gautam Adani — the richest man in india at the time, of pulling off the “biggest scam in corporate history.” The report alleged that the conglomerate engaged in stock manipulation and fraud.

He Adani Group strongly denied any wrongdoingcalling the report a “calculated attack on India” and its institutions.

Still, the fallout led to Adani’s net worth plummeting, following a plunge in shares in the ports-to-energy conglomerate earlier this year.

Asked if the headwinds facing the Adani Group played a role in Bain’s calculations, Lyons said: “It was a non-core asset to the Adani Group overall and there are no material links between the businesses going forward.” .

“This is a business that will be controlled by Bain Capital in partnership with Gaurav Gupta, and will be managed by us for the long term,” he added.

The Bain deal follows other international investments by companies such as GQG, which raises its stake in Adani’s conglomerate by 10% in May.

The purchase is expected to close in the fourth quarter of this year, pending market and regulatory approvals.