Shriram Finance’s board would meet Friday to likely consider an equity stake sale in the vehicle financier to Japanese banking giant, the Mitsubishi UFJ Financial Group (MUFG). Shriram said in a customary filing that its board would consider raising funds by way of a rights issue, preferential allotment, qualified institutions placement or through any other permissible mode.
On October 1, ET had reported that MUFG was in advanced talks to take a 20% stake in India’s second largest non-banking finance company (NBFC), Shriram Finance, for about ₹23,200 crore ($2.6 billion). If the deal fructifies, it would be the biggest strategic investment by an overseas lender in the Indian NBFC.
However, valuations have since climbed as investors have poured money into the stock in anticipation of the deal.
From ₹616 a piece at the end of September 30, the Shriram stock has risen more than 40% to ₹864 a piece at the BSE on Wednesday.
“A 20% stake at current valuations comes to more than ₹40,000 crore, which could be the single largest deal in the Indian financial sector. It remains to be seen whether the deal is priced at a premium to the current market price,” said a person aware of the details.
The move underscores heightened interest of Japanese financial services corporations in Indian banks and shadow lenders. It follows Sumitomo Mitsui Banking Corp (SMBC) taking a 24% stake in Yes Bank earlier this year.
SMBC invested a total of ₹16,333 crore to buy more than 24% stake in Yes Bank through secondary market transactions from the State Bank of India, private sector banks and Carlyle.
The Shriram Finance deal will be the largest foreign direct investment (FDI) in the Indian NBFC space to date. Both sides have signed an exclusivity agreement on negotiations.
Unlike the SMBC deal, the investment by MUFG will be through a primary issuance and will not entail any secondary sale of shares. The Japanese bank is, however, not averse to taking a higher stake in the NBFC, even a controlling interest, over a period of time, ET had said. In such an eventuality, it would have to launch an open offer.
The promoters own 25.39% of Shriram Finance, the bulk of which is held through group holding company Shriram Capital, which has a 17.85% stake.
Source: Economic Times