Adar Poonawalla controlled investment firm Rising Sun Holdings will buy a controlling stake in Magma Fincorp with an investment of Rs. 3,200 crore reflecting a gradual return of investor interest in non-banking finance companies, which lost charm since the collapse of infrastructure conglomerate IL&FS more than two years ago.
The move will bolster the financing arm of the Poonawalla Group, which runs Serum Institute, the world’s biggest vaccine maker. Poonawalla Finance, a small-time non-banking finance company based out of Pune will now surrender its licence only to consolidate the business into Magma FinCorp’s operations.
Rising Sun will hold 60 percent ownership in the company with the latest equity capital infusion. Magma’s existing promoters including Sanjay Chamria and Mayank Poddar too will pump in Rs 250 crore. Subsequent to the new capital infusion by Poonawalla their shareholding will drop to 13.3 percent from 24.5 percent earlier.
“Total new capital infusion will bolster networth of the company,” said Sanjay Chamria, who would continue as the executive vice chairman on the board of the company. Considering the positives in the deal by way of huge capital infusion, strong brand value and ability to attract top notch talent, the Board of the Company has rightly decided to accept an offer for a substantial equity infusion into the Company.”
Total Netowrth of the company will likely more than double to Rs 6,300 crore from now.
The preferential allotment is for an aggregate value of Rs. 3,456 crores, subject to shareholders’ and other regulatory approvals, the company said.
Shareholders of Magma are meeting on March 9 on the matter. Later, Magma will seek approval from the Reserve Bank of India, Insurance Regulatory and Development Authority and Competition Commission of India.
With approvals in place Magma will be rebranded with a ‘Poonawalla’ prefix. The Pune-based promoter will also own Magma’s housing finance and insurance business.
The non-bank entity has an asset size of about Rs 15,000 crore, 4 percent lower than the size in the corresponding period last year. An outbreak of coronavirus triggered a shrinkage in business volumes.
Institutional investors have of late started showing interest in non-bank lenders with the authorities successfully resolving Dewan Housing Finance (DHFL), the first financial services company to be admitted under Insolvency and Bankruptcy Code.
Piramal Group will be the new owner of DHFL that borrowed about Rs 89,000 crore from the lenders, fixed depositors and bondholders.
Adar Poonawalla will become the new chairman of the Board of Directors, and Abhay Bhutada, presently Managing Director & CEO of Poonawalla Finance, will don the role of managing director in the new entity.
“The management team will be further strengthened through the appointment of a professional CEO & COO from amongst the best in the industry, with substantial experience of running large financial services’ businesses,” the NBFC said in a release.
