Shriram Capital Ltd., the holding company of Shriram Group of companies, plans to merge two of its largest subsidiaries — Shriram Trasport Finance Co. Ltd and Shriram City Union Finance Ltd. – with itself, aimed at providing an easy exit to investors Piramal Enterprises Ltd. and TPG Capital.
Three people familiar with this strategy of Shriram Capital confirmed this, adding that the plan entails creation of a simpler shareholding structure for Piramal Enterprises and TPG so that they are able to sell off their stakes.
“This deal will take a few more months as it will require necessary approvals for this merger to happen. Piramals were not looking at an exit until last year and now want to use the funds to strengthen balance sheet,” said R Thyagarajan, founder of Shriram Group.
Emails sent to Shriram Capital and Kotak Mahindra Capital Co went unanswered.
On Friday, Ajay Piramal, chairman Piramal Group, told Mint in an interview that group’s planned exit from Shiram Capital is on track.
Piramal bought a 20% stake in Shriram Capital in 2014 for Rs. 2,014 crore. Piramal holds 10% in Shriram City Union. Over the past few months, Piramal has been looking for a buyer for these stakes.
TPG Capital holds a 9% stake in Shriram Capital, while South Africa-based Sanlam Group owns 26% and Shriram Ownership Trust has a 45% stake in Shriram Capital.
If the deal goes through, the proceeds from the stake sale will be used by Piramal primarily to infuse capital into its lending businesses, repay debts of Piramal group’s promoter entities and provide capital for an organic growth.
Piramal had a 9.97% stake in Shriram Transport Finance but in June sold this stake for ₹2,300 crore.
The merger, if consummated, will result in an automatic listing of Shriram Capital since Shriram City Union and Shriram Transport both are listed entities.
Shriram Capital’s businesses include commercial vehicle finance (Shriram Trasport Finance Co. Ltd), consumer and enterprise finance (Shriram City Union Finance Ltd.), retail stock broking (Shriram Insight Share Brokers Ltd.), life insurance ( Shriram Life), general insurance (Shriram General Insurance), financial product distribution (Shriram Fortune Solutions Ltd.) and wealth advisory (Shriram Wealth Advisors).
On 30 August, a Piramal Group spokesperson had told Mint that since January Piramal has raised over ₹23,000 crores of long term funding through banks, financial institutions and external commercial borrowings. “Also, as previously stated we intend to bring in further equity of ₹8,000-10,000 crores into the financial services business, of which ₹2,500 crores has already been allocated. All of this will be more than sufficient to not only address all repayments but also to augment business growth in this financial year.”