S&P Global Ratings today placed the rating of Shriram Transport Finance Co (STFC) on ‘CreditWatch’ following the announcement of a proposed merger of the IDFC group and Shriram group of companies. “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,” S&P Global Ratings credit analyst Nikita Anand said.
The rating impact will also depend on “STFC’s strategic importance within the group following the merger”. In a statement, S&P said it had placed its ‘BB+’ long- term and ‘B’ short-term issuer credit ratings on STFC on CreditWatch with developing implications. CreditWatch, which deals in potential direction of a short-term or long-term rating, marks out identifiable events and short-term trends that cause ratings to be placed under special surveillance. On July 8, the boards of Shriram Group and IDFC entered into an exclusivity arrangement for 90 days to jointly explore an opportunity for a merger.
S&P said the proposed merger requires approval from several regulatory bodies, along with approval from both groups’ shareholders. “Given the complex nature of the transaction involving several listed entities, these approvals can take time. We believe the proposed merger could take up to 12 months to materialise,” the rating agency said.
“We expect to resolve the CreditWatch placement over the next three to six months after we receive more details regarding the merger, including the expected final group structure and associated changes in management and strategy,” it added. S&P is also going to look into the creditworthiness of the merged entity and STFC’s strategic importance within the group.