S&P Global Ratings on Wednesday placed Shriram Transport Finance Corporation (STFC), the commercial vehicle financing arm of the Shriram Group, on ‘CreditWatch’ following the announcement of a merger of the IDFC Group and Shriram Group of companies. The CreditWatch placement by the ratings firm came after the stock markets on Monday had given a thumbs down to the proposed merger.
Shares of companies belonging to the Shriram Group and IDFC had fallen on the first day of trading post the merger announcement on Saturday, amid concerns over the complexities and regulatory hurdles involved with the merger.
In the observations made on STFC, S&P Global Ratings said, “Any rating impact from the potential merger of Shriram group’s financial services businesses with the IDFC group would depend on the final terms of the deal, including the post-transaction structure, pricing, and financial profile of the merged group. The rating impact would also depend on STFC’s strategic importance within the group following the merger.”
S&P placed its ‘BB+’ long-term and ‘B’ short-term issuer credit ratings on STFC on “CreditWatch with developing implications”. It also placed ‘BB+’ long-term issue rating on the finance company’s senior secured notes on CreditWatch with developing implications. It observed that the proposed merger could take up to 12 months to materialise given the complex nature of transactions involving several listed entities and requirements of approvals from several regulatory bodies and shareholders of both the groups.
The ratings agency said that it expects to resolve the CreditWatch placement over the next three to six months after it receives more details regarding the merger.
Meanwhile, in an interview to a business news channel on Wednesday, R Thyagarajan, chairman of the Shriram Group, said, “I would not say RBI has made any specific commitment, we believe we have better understanding of RBI’s priorities and their objectives and we will conform. Whatever guidance they give us in this matter, we will be abiding by it.”
Thyagarajan also said that Ajay Piramal’s participation in running the Shriram Group is only in the interest of the community and the shareholders, and the group will be guided by what the regulators say on this as well. “There will be no misalignment in our objectives and Ajay Piramal will also be part of the whole thing,” he said. As for the share swap ratio, Thyagarajan reiterated that when the groups will look into those details, it will be keeping in mind the interest of the shareholders, regulators and as well as the customers.
IDFC Bank and the Shriram Group announced on Saturday that they were exploring a merger that would help build a mass retail franchise with a universal bank at its core, and offer customers a range of products. According to the proposal, Shriram City Union Finance will be merged into IDFC Bank and Shriram Transport will remain as a standalone unit of IDFC. The life and general insurance units of Shriram Group will also become parts of IDFC.
The details of the deal will be worked out over the next three months and the merger would be subject to a host of approvals from regulators including the RBI, Sebi and Irdai.