Three people aware of the discussions said the talks are ongoing even as the Chennai-based financial services firm plans to merge two of its publicly traded entities Shriram Transport Finance Co and Shriram City Union Finance with the unlisted parent Shriram Capital. This is being done to simplify the corporate structure and facilitate exit for existing investors such as TPG Capital and Piramal Enterprises.
At Rs 17,000 crore, Piramal’s 8 per cent stake in Shriram Capital is being valued at Rs 1,360 crore, while its 10 per cent in listed Shriram City Union is valued at Rs 873.16 crore.
In comparison, the total market value of Shriram Capital in the listed companies Shriram City Union Finance and Shriram Transport Finance is Rs 9,602 crore.
Kotak Mahindra Capital has been appointed by Shriram to compute the merger ratios. The merger, if and when it happens, will also require the approval of a majority of minority shareholders of each of the entities. Some of the minority shareholding will get diluted in the combined structure.
The proposed three-way merger will result in the automatic listing of Shriram Capital, as Shriram City Union and Shriram Transport are both listed. Sanlam is already an existing investor in Shriram Capital with a 26 per cent stake along with Shriram Ownership Trust (30.7 per cent), Shriwell Trust (13.4 per cent), Piramal Group (20 per cent) and TPG Capital group (9.4 per cent). Individuals own 0.5 per cent in the holding company.
Headroom to Buy 7-8 per cent in Holding Co
Sanlam is also a joint venture partner in the two life and general insurance subsidiaries, with 23 per cent and 22.96 per cent stake, respectively.
Sources said because of its direct and indirect holding in the insurance ventures, Sanlam has a headroom to buy only 7-8 per cent in the holding company. Local rules bar foreign insurers from owning more than 49 per cent in Indian insurance firms.
A Piramal spokesperson declined comment on market speculation while R Thyagarajan, founder of Shriram Group, denied Sanlam’s plans of a stake hike. “I confirm there is no offer from Sanlam to take any stake in Shriram Capital. Rumours float around. Discussions on merger have been taking place within the companies for months now and a plan may emerge in due course. As and when and if it happens, the media will be kept informed,” Thyagarajan told ET.
“Sanlam has been aware that both the Piramal Group as well as TPG are evaluating the feasibility of selling their respective shareholding in Shriram Capital Limited (SCL) and do not have anything to add to what was already said by the respective entities,” a Sanlam spokesperson told ET.
In his recent interaction on October 25 following the CDPQ announcement, Ajay Piramal, chairman, Piramal Enterprises, had told ET he was on track to raise Rs 8,000-10,000 crore in the financial services business this financial year. “We have raised Rs 2,400 crore from Shriram Transport stake sale in June and will raise Rs 5,400 crore from CDPQ and existing investors. We will raise funds further through Shriram Capital. We will more than deliver on our commitment.”
Between fiscal 2013 and fiscal 2017, Shriram Capital (along with subsidiaries and associates), has raised equity capital of over Rs 5,300 crore from the Piramal group and the Sanlam group.
Shriram Capital’s businesses include commercial vehicle finance, and consumer and enterprise finance through the listed Shriram Transport Finance and Shriram City Union Finance, retail stock broking (Shriram Insight Share Brokers Ltd), life insurance (Shriram Life), general insurance (Shriram General Insurance), financial product distribution (Shriram Fortune Solutions) and wealth advisory (Shriram Wealth Advisors).
Piramal bought 20 per cent in Shriram Capital for Rs 2,014 crore in 2014 and holds 10 per cent in Shriram City Union. It wanted to merge Shriram Capital with Piramal Enterprises, the group flagship, but efforts failed due to the sheer difference in size.
Piramal has been scouting for a buyer for the Shriram stakes to raise badly-needed cash for financial services businesses which has been hit by concerns of exposure to weakened corporate lenders and real estate developers.
Piramal Enterprises sold 10 per cent in Shriram Transport Finance for Rs 2,300 crore some months back. But plans to exit Shriram Capital have not yet borne fruit even though it ran a formal process along with TPG through JP Morgan and Morgan Stanley in recent months to find buyers for their combined 30 per cent stake.