One of its major businesses -- car financing and conventional hire purchase with an asset portfolio of around Rs 300 crore -- is being spun off into a separate company.

Group financial services director SK Mitra told The Financial Express that the Birlas wish to rope in a partner for the new company. "We have already begun discussions with some foreign companies with a strong background in this business," he said.

"Whether we keep majority or equal stake will depend entirely on what the partner can bring to the table," Mitra added. The past two years have been a downhill journey for most players in hire purchase and car financing with transportation and automobile sectors, as well as small and medium manufacturing companies, being hit severely due to the recession.

The tie-up, when forged, will bethe group's fifth joint venture in financial services. It has already tied up with Sun Life Assurance for four separate joint ventures--mutual funds, insurance, retail distribution and stock broking.

Though the retail distribution business of Birla Global is being transferred to a separate venture Sun Life, the flagship will retain part of the retail business to supplement the group's foray into mutual funds and insurance, both of which need to be retail-driven.

Birla Global, Mitra explained, will remain only in assured returns products for which there is a strong demand from the small investors. As part of the restructuring, the category I merchant banking license of Birla Global has already been transferred to a subsidiary, Birla Securities, Mitra added.

"Merchant banking is now a low priority area for us now. To be a major player in this field one should have the international network, but there are no major investment banks with which we can tie-up," Mitra said.

The Aditya Birla group has alreadytransferred the holdings of its manufacturing companies in the different financial services firms to a group investment company, christened Birla Financial Services Holdings, as part of the recast.

As a result of the new arrangement with Sun Life, the group has had to sever its tie-ups with Capital International and Marlin Partners. Through the asset management company with Capital International, the group managed funds in excess of Rs 700 crore. The AMC has also reached an arrangement with Apple Mutual Fund to manage to of its mutual funds with a total portfolio of around Rs 55 crore.

The group is also keen on entering the banking sector and is awaiting clearance from the Reserve Bank of India for a fresh license.

Amulating trend

The spin-off of the asset financing business and the proposed recapitalisation of that business was almost inevitable and is in keeping with the trend in the leasing industry. Following the tightening of NBFC norms by the RBI, repayment of fixed deposits has become apriority for the company. Hence the need to find a strategic investor for the asset finance business as networth has become an over-riding criterion.

Birla Global operating as a holding company is nothing new as it is already a holding company for the stock broking and asset management businesses. Now the asset finance business is converted into a subsidiary. This business brought in 74 per cent of total revenues and comprised half of its total assets. Only some trade finance, retail distribution and collateral finance businesses will be left with Birla Global Finance which amounts to very little as far as shareholders are concerned. There will be a fall in earnings as a result of this move.