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Baring EQT, ChrysCapital acquire HDFC's education loan arm for $1.1 billion

By Siddhi Nayak, M. Sriram and Indranil Sarkar

MUMBAI/BENGALURU (Reuters) - BPEA EQT and ChrysCapital will buy a 90% stake in Housing Development Finance Corporation's education finance arm HDFC Credila for 90.60 billion rupees ($1.11 billion), marking India's largest-ever private equity (PE) buyout in the financial services sector.

The deal comes as more investors bet on the country's aspirational middle class and a rising number of international students who could potentially take total spending to $75 billion-$85 billion in 2024, according to Credila's annual report.

The deal will also help the mortgage lender adhere to the mandated regulatory requirements before its $40 billion merger with HDFC Bank proposed to be completed next month. India's central bank had asked HDFC to reduce its shareholding in HDFC Credila to 10% within two years of the effective date of the merger.

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"This is a win-win deal for both HDFC and the PE firms," said Kranthi Bathini, equity strategist at WealthMills Securities. "These PE firms are betting big on India’s long-term proposition and a favourable demographic dividend that will boost the market for education loans further."

In addition to buying out HDFC Credila, the PE firms will also infuse primary money of 20 billion rupees.

BPEA EQT combines the private equity teams from Baring Private Equity Asia (BPEA) and EQT Asia. BPEA is one of Asia's biggest PE firms managing more than $22 billion, while ChrysCapital is a prominent Indian name in the space.

Monday's deal is PE's second education loan bet in India this year. Kedaara Capital invested around $100 million in education-sector lender Avanse Financial Services, which was also backed by Warburg Pincus, in January.

The number of Indian students opting for higher education overseas has been surging, with the U.S., UK and Canada seen as favourable destinations.

International student growth jumped 68% year-on-year in 2022 as well as outpaced domestic student growth by more than six-fold over the last three years, according to Credila's annual report.

Outstanding education loans of Indian banks have also jumped 18% year-on-year as of April 21, against a 6.2% increase in the year-ago period, according to Reserve Bank of India data.

Post the stake sale, HDFC will retain a 9.99% share in its education finance unit, which has extended loans to over 1.24 lakh customers since its inception in 2006.

Jefferies acted as the exclusive financial advisor to HDFC and HDFC Credila on the deal, which is subject to regulatory approvals from the RBI and the Competition Commission of India.

($1 = 81.9480 Indian rupees)

(Reporting by Siddhi Nayak and M. Sriram in Mumbai and Indranil Sarkar in Bengaluru; Editing by Janane Venkatraman)