Manappuram Finance & Bain Capital Deal: RBIs Open Offer Rule Explained

Introduction

I was scrolling through my news feed the other day and stumbled across a couple of updates that caught my eye. Both were about Manappuram Finance, India’s second-largest gold loan provider. The first one was from Moneycontrol, talking about how Manappuram is issuing an 18% stake to Bain Capital for a cool Rs 4,385 crore. The second one was from Reuters was talking about the similar story. Is there a twist to this story? For sure, this isn’t just a simple stake sale, it’s triggering something called a “mandatory open offer” for an additional 26% stake from existing shareholders.

What this “mandatory open offer”?

If you too, like me, is wondering what’s going on, don’t worry, I’ve done some research and will explain the thing (mandatory open offer) to you in this post.

Allow me to declutter this news first and then we’ll dive deep into this mysterious “rule” that’s got me thinking.

I’ll share with you my thoughts on what this deal means for Manappuram and its long-term investors. Let me tell you this at least at the outset, there’s more to this than meets the eye.

What’s in the News?

Bain Capital, a big-shot US private equity firm, is going all in to grab an 18% stake in Manappuram Finance.

The deal’s set to close sometime in the second or third quarter of the next financial year (think late 2025 or early 2026).

But here’s the thing, because of this move, Bain has to make an open offer to buy another 26% from existing shareholders at the same price (Rs 236 per share). Depending on how many shareholders take the bait, Bain’s stake could balloon to anywhere between 18% and 41.7%.

Meanwhile, the promoters (including the big boss of Manappuram Finance V.P. Nandakumar) will still hold 28.9% and stay in the game.

Sounds like a power move, but why the extra 26%? That’s where the Indian rule comes in.

The SEBI’s Rule

This “mandatory open offer” isn’t some random corporate flex, it’s an Indian rule specifically called as SEBI’s Substantial Acquisition of Shares and Takeovers, Regulations, 2011, or the Takeover Code for short.

This rule acts as a guardrail to keep things fair when someone’s trying to take a big bite out of a listed company (like Manappuram Finance).

Here’s how it works in simple terms.

If anyone (a person, a company, or a fancy firm like Bain Capital) buys a stake that crosses a certain threshold in a publicly listed company, they’ve got to give other shareholders a chance to cash out too. That threshold is 25%. Once you hit or exceed 25%, either through a direct purchase, preferential allotment, or whatever, you’re legally required to make an open offer to buy at least another 26% from the public shareholders.

It’s like SEBI saying, “Hey, if you’re getting cozy with that much control, let’s make sure everyone gets a fair shot to join the party, or if they are not ok with the deal, allow them to bail out.”

But Bain Capital is buying only 18% Stake not 25%

In Manappuram’s case, Bain’s grabbing only 18% upfront, which doesn’t hit the 25% threshold, right? So why the open offer still?

But this deal is structured with warrants. What’s warrants? It’s a fancy alternative for Bain Capital to buy more shares later. So, if Bain exercises this right, it can push Bain’s stake past the threshold of 25%. Plus, the deal gives Bain “joint control” with the promoters, which signals a shift in power dynamics.

Hence, SEBI sees this as a big enough move to trigger the rule. So, Bain has to roll out the red carpet and offer to buy 26% more at Rs 236 per share. it is the same price they’re paying for the initial 18%. It’s not optional; it’s the law.

Why the rule specifically ask for 26%, not less not more?

Why 26%, you ask? It’s not a random number.

The Takeover Code picked it because it’s enough to give the acquirer a shot at majority control (if they get it all).

Majority Stake (51%) = Threshold (25%) + Open Offer Buy (26%)

But while the buyer (Bain) is making his sweet deal, SEBI’s rule is still protecting the smaller shareholders. The rule ensures minority shareholders aren’t left in the dust when big players start flexing their muscles. If the small player did not like the deal, they can exit.

Oh, and one more thing, the offer has to be at a fair price.

The offer price shall be usually the highest price paid in the deal or the average market price over the past few months, whichever’s higher. For Manappuram, it’s locked at Rs 236, a 30% premium over the six-month average. Not too shabby if you’re a shareholder thinking of cashing out.

How Does The Open Offer Will Play Out in Real Life?

Imagine this, Bain’s sitting at 18% after the initial buy.

They announce the open offer, and shareholders, maybe me or you, if we own Manappuram stock, get a letter from the company. The letter says, “Do you want to sell us your shares at Rs 236?” Some might jump at it, especially if they think the stock’s peaked. Others might hold tight, betting on future growth.

If enough folks sell, Bain could end up with 41.7%. It will make them a heavyweight alongside the promoters. If not, they stick closer to 18%.

Either way, SEBI’s rule keeps it transparent and democratic. It sounds very fair to me.

Recent Example

This isn’t the first time we’ve seen this dance.

A notable example of SEBI’s open offer rule in action occurred in August 2022 when Adani Group acquired a 29.18% stake in NDTV. This triggered a mandatory open offer for an additional 26% from public shareholders at Rs.294 per share, as per the SEBI Takeover Code.

This followed their indirect acquisition via Vishvapradhan Commercial Pvt Ltd, pushing their stake past the 25% threshold. Details are in this ET article.

What’s Cooking with Manappuram and Bain?

What’s this deal really mean? I’ll share with you what I think about this deal (my perspective).

On the surface, it’s a win. Bain Capital isn’t some small-fry investor; they’re a global titan with deep pockets and a knack for scaling businesses. Partnering with them could turbocharge Manappuram’s growth.

What will be the benefit to Manappuram? Better tech, sharper risk management, and maybe even a push beyond gold loans into new territories.

The company’s been reasonably successful in the gold financing space. But with Bain’s muscle, they could level their business. For long-term investors, that’s exciting, more growth potential, professional management, and a shiny stamp of credibility.

But there is something which is not as dear? why are the promoters letting Bain in at all?

Manappuram’s been doing quite well, right? Gold prices are sky-high, loans are flowing, and they’re a household name in South India. So why sell an 18% chunk and dilute your control?

Sure, the promoters are keeping 28.9%, but this feels like a deviation from the normal. Are they cashing out because they see trouble ahead? Or is it the opposite, do they need Bain’s firepower to tackle something big we don’t see yet?

• One theory: Succession. V.P. Nandakumar’s built an empire, but who’s next in line? His family’s still in, but maybe they’re thinking long-term—bringing in a pro like Bain to smooth the transition.
• Another angle: Diversification. Gold loans are great, but the market’s getting crowded, and their microfinance arm (Asirvad) hit some regulatory speed bumps recently. Bain could help pivot to safer, broader waters.

My Perspective

Here’s my gut feeling, this isn’t a distress signal.

If it were, the promoters wouldn’t stick around with nearly 29%. I think it’s a calculated bet, sell a piece now at a premium (Rs 236), lock in a powerhouse partner, and ride the wave to bigger things.

For investors, I think, it’s a green light if you’re in for the long haul. Bain’s involvement screams confidence, and the stock’s already jumped 6% on the news.

But if you’re not comfortable about promoter moves, you might wonder, do they know something we don’t about their business?

Conclusion

So, there you have it, the SEBI rule’s a fairness play, forcing Bain to give everyone a shot at the exit door while they cozy up to Manappuram.

I’m leaning optimistic, this deal could be a rocket booster for the company, and long-term holders might reap the rewards.

But I’ll keep an eye on those promoters. Are they geniuses playing 4D chess, or are they quietly hedging their bets? Time will tell for sure.

What do you think, bullish or cautious on this one? Drop your thoughts in the comment section below.

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