"The Board of Directors at their meeting held on July 26 considered and approved an issue of Rs five crore compulsorily convertible preference shares of Rs 100 each aggregating to Rs 500 crore on a preferential basis as permitted by SEBI," the company said in a statement.
This capital infusion will help the company meet the business growth and augment the Tier 1 capital adequacy ratio (CAR), it said.
The CCPS will bear a dividend coupon of one per cent per annum payable from the date of allotment of the shares till the date of conversion into equity shares.
The release further said the CCPS shall be converted into equity shares at the expiry of 12 months from the date of allotment or earlier at the discretion of the Board.
The entire issue will be subscribed by funds advised by the global private equity firm Apax Partners, the release said.
"We are glad to have the opportunity to work with Apax, a leading global PE firm, in this round of capital infusion," Cholamandalam Managing Director S Vellayan said.
The proposed preferential issue is subject to the approval of the members of the company and any other applicable regulatory approvals, the release said.
Commenting on the development, Managing Director and Head of Apax's India office Shashank Singh said, "We believe in the long-term secular growth runway of Indian retail financial services and Cholamandalam is well positioned in this space, with an outstanding management team and exposure to attractive lending segments."
Axis Capital was the exclusive transaction advisor to Cholamandalam for this fund rise, while the M&A (merger and acquisition) advisor to Apax Funds was Kotak Mahindra Capital Company. Khaitan & Co and Kirkland & Ellis LLP were legal counsel for Apax Funds on this transaction, the release said.
Cholamandalam, the financial services arm of the Murugappa Group, operates from over 575 branches across India with assets under management above Rs 25,000 crore.