Manappuram Finance shares experienced a sharp decline on January 9, falling 7% to ₹287.30 following reports that the Reserve Bank of India has raised regulatory objections to Bain Capital's proposed stake acquisition in the non-banking financial company.

Deal Structure and Regulatory Hurdles

Bain Capital's investment plan, announced in March, involves acquiring an 18% stake in Manappuram Finance for approximately ₹4,400 crore, followed by an open offer for an additional 26% stake. This structure would position Bain as one of two controlling shareholders with significant influence over management decisions.

While the deal has received approval from market regulator SEBI and the Competition Commission of India, the RBI serves as the final authority for clearance of large stake purchases in banks and non-banking lenders.

RBI's Multiple Lender Control Concerns

The central bank's objections stem from its policy against investors controlling multiple lending institutions. Bain currently owns 93% of non-bank lender Tyger Capital, formerly known as Adani Capital, which it acquired from the Adani family in 2023 through its Bain Capital Special Situations fund.

According to Reuters sources, private equity firms holding 20% or more in non-bank lenders have previously been required to divest holdings when facing RBI opposition.

Potential Resolution Strategy

To address regulatory concerns, Bain is reportedly exploring a phased divestment of its stake in Tyger Capital. The company has argued that its investments in Manappuram and Tyger are being made through different funds and teams, though sources suggest this argument is unlikely to influence the RBI's position.

Company Profiles and Market Context

Manappuram Finance operates with a ₹31,500 crore loan book focused primarily on the fast-growing gold loan segment. In contrast, Tyger Capital maintains a smaller ₹7,320 crore asset base comprising business, farm, and home loans.

India's financial sector witnessed significant foreign investment activity in the previous year, with notable transactions including:

• Japan's MUFG acquiring a 20% stake in Shriram Finance for $4.40 billion in December
• Blackstone agreeing to pay approximately $700 million for a 9.90% stake in Federal Bank in October

The outcome of Bain's regulatory discussions with the RBI will determine the timeline for completing its substantial investment in Manappuram Finance.

Manappuram Finance shares experienced significant volatility on Friday, January 9, following reports of regulatory hurdles in a major acquisition deal. The stock initially plummeted 10% before recovering to close the session with more moderate losses.

Market Response to Regulatory Concerns

According to a Reuters report citing sources, the Reserve Bank of India has raised objections to Bain Capital's plans to acquire a controlling stake in Manappuram Finance. The news triggered immediate selling pressure, causing the stock to fall sharply in early trading.

Bain Capital's Response Strategy

The Reuters report further indicated that Bain Capital is actively exploring alternative approaches to address the regulatory concerns. Specifically, the private equity firm is considering a phased divestment in India's Tyger Capital as a potential solution to move forward with the Manappuram deal.

This development suggests that while regulatory hurdles exist, Bain Capital remains committed to finding a path forward for the acquisition, albeit through modified deal structures that may better align with RBI's requirements.

Stock Performance and Recovery

Despite the initial sharp decline, Manappuram Finance shares showed resilience during the trading session. The stock recovered from its 10% intraday low to close 6.7% lower at ₹288.55, indicating some investor confidence in the company's fundamentals despite the deal-related uncertainties.

The partial recovery suggests that while investors are concerned about the regulatory obstacles, they may view the situation as a temporary setback rather than a fundamental issue with the company's business prospects.