The board of Shriram Finance on Friday approved an investment of Rs 39,618 crore by Japan’s Mitsubishi UFJ (MUFG) Bank through a preferential issuance of equity shares, making it the largest foreign direct investment (FDI) in a financial services company in the country.
The board cleared the issuance of 471.1 million equity shares at Rs 840.93 apiece to MUFG Bank, which will translate into a 20% minority stake in Shriram Finance on a fully diluted basis. The fundraise, subject to shareholder and regulatory approvals, will be carried out through a private placement route, Shriram Finance informed the exchanges.
Valuation Spike
“This transaction marks a defining moment in our growth journey,” Umesh Revankar, executive vice-chairman, Shriram Finance, said.
The board will meet shareholders on January 14 to seek approval for the transaction.The board has also given the right to nominate up to two non-independent directors and the pre-emptive right of the investor to subscribe to pro-rate shareholding. The rights would no longer be applicable once the shareholding falls below 10%.
The fund infusion will enhance the non-bank lender’s capital adequacy, strengthen the balance sheet and provide long-term growth capital. It would also improve access to low-cost liabilities and strengthen the credit ratings of the company.
MUFG will pay $200 million to Shriram Finance’s promoter as non-compete fee.
On Friday, the company’s stock hit an all-time high and closed at Rs 905.10, up 4.10% on the NSE.
Commenting on the deal, Uday Kotak, founder of Kotak Mahindra Bank, said on X, “Happy to see big ticket foreign investment in Shriram Finance by Mitsubishi UFJ, a reputed global bank and financial institution. Will Shriram continue as an NBFC which has huge potential without regulatory constraints of a banking company, or apply to become a bank in due course?”
As on September 30, the assets under management (AUM) of Shriram Finance rose 15.74% on year to `2.81 lakh crore, making it the second largest non-bank finance company in India. According to the investor presentation, the non-bank lender’s AUM is expected to grow to Rs 4 lakh crore by FY28.
Strategic Pivot to Indian Credit
The non-bank lender offers a wide range of products including commercial vehicle loans, MSME loans, tractors and farm equipment, gold loans, personal loans, and working capital loans, across its 3,225 branches.
The interest of Japanese investors in the Indian financial markets has picked up this year with Sumitomo Mitsui Banking Corporation’s (SMBC) acquisition of a 20% stake in Yes Bank and Mizuho Securities buying a stake in KKR-backed investment bank Avendus.
In the board meeting, the promoter Shriram Capital expressed its in-principle intent to explore a possible restructuring of its holdings. The proposed exercise may involve separating or reorganising its lending and credit business from other business interests. However, the company said that the move is at a preliminary and exploratory stage and no final decision has been taken yet.
