Japan’s Mitsubishi UFJ Financial Group (MUFG) is in talks to invest nearly Rs 40,000 crore or $4.5 billion for a 20% stake in Shriram Finance Ltd, marking the largest strategic investment by a foreign lender in India’s non-banking financial company (NBFC) sector. According to the deals of the transaction, Japan’s MUFG will acquire 47.1 crore shares at a floor price of Rs 840.93 per share.
“The Board of Directors of Shriram Finance Ltd (SFL) at their meeting held today approved entering into definitive agreements with MUFG Bank Ltd. (MUFG Bank) for an investment of Rs 39,618 crore (~$4.4 billion ) in SFL through a preferential issuance of equity shares. This investment will result in MUFG Bank acquiring a 20.0 % stake on a fully diluted basis,” said the NBFC in a regulatory filing to the stock exchanges on Friday, Dec. 19.
MUFG-Shriram Finance Deal
As part of the deal, Japan’s MUFG will subscribe to 47.1 crore shares at Rs 840.93 per share, which is a 5% discount to the current market price (CMP) of Rs 898. After the stake acquisition by MUFG, Shriram Finance’s promoter stake will come down to 20.3% from 25.4%.
Additionally, the existing public shareholder stake will dilute to 59.7% from 74.6% after the deal. Post the fund infusion, the book value increases to Rs 425.2 per share from Rs 321 per share, which is a growth of 32%. At a floor price of Rs 841, this translated to a price-to-book value of 2x.
The investment will be made through a preferential issuance of equity shares. MUFG will pay a one-time, non-recurring, non-compete and non-solicit fee of $200 million to Shriram Ownership Trust. MUFG also will have the right to appoint two nominee directors on the board of Shriram Finance.
Shriram Finance’s Board will convene Extra Ordinary General Meeting Of Shareholders On Jan. 14. The board has also approved certain minority protection rights in favour of MUFG. It will explore possible restructuring of its holdings in various businesses.
Japan’s major bets on Indian NBFCs
The landmark transaction will be the largest foreign direct investment in a financial services company in India and reflects foreign banks bet on Indian growth story. Japanese banks increasingly investing in local Indian financial institutions. In the past few quarters, foreign investors have lined up to buy a piece of India’s financial institutions.
IDFC First Bank received Rs 7,500 crore from Warburg Pincus & ADIA. Yes Bank saw Sumitomo Mistsui Banking Corp buying over a 24% stake. RBL Bank recently sold 60% stake to Emirates NBD for $3 billion, and Federal Bank will raise Rs 6,200 crore equity from Blackstone for 9.99% stake.
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