Chennai-based NBFC major Shriram Group is mulling merging three of its group companies in order to facilitate the exit of the Piramal Group and TPG, both investors in the companies. The latest reports quoting sources indicate that Shriram Transport Finance Co. Ltd and Shriram City Union Finance Ltd will be merged with Shriram Capital Ltd thus there will be one single entity with the shareholding in the separate entities adjusted for parity.
The idea is to bring up a fair valuation of the 20% stake in Shriram Capital and 10% in Shriram City Union that the Ajay Piramal led Piramal Group holds. The stakes were purchased by the Piramals some years back when they wanted to ultimately merge the companies with their own. This did not take place for various reasons and now it has been decided that the best way forward is for them to exit the Chennai headquartered financial powerhouse. The third entity, Shriram Transport Finance was also in the equation with Piramal holding 9.97% in it. However, it got sold a few months back for Rs 2,300 crore.
As for TPG, it has 9.4% in Shriram Capital that it wants to sell and move on. After considering various options in the past, the merger option will be taken ahead and there will be one listed company and it will be easy to arrive at a proper valuation for the stakes to be sold. Shriram Capital is being valued at around Rs 25,000 crore, though it is not clear if it is pre or post-merger as proposed.
The value of shares being held by the Piramal Group is put at between Rs 4,500 crore and Rs 5,000 crore. It is reported that Piramal will use the funds realized to pare some debts and to infuse additional fund into its own lending companies.
Though at these valuations, the amount appears large for a single ticket investment, sovereign funds from overseas and PE firms may be keen on making the purchase of these shares from Piramal and TPG. In fact, Advent International, Blackstone Group, CVC Capital, Carlyle Group and Brookfield have already put in their initial bids in August for the stakes held by Piramal and TPG.
Shriram Capital is a large conglomerate with a lot of businesses within its fold. It offers commercial vehicle finance (Shriram Trasport Finance), consumer and enterprise finance (Shriram City Union Finance), runs a retail stock broking firm (Shriram Insight Share Brokers Ltd), deals in life insurance (Shriram Life Co. Ltd), general insurance (Shriram General Insurance), financial product distribution (Shriram Fortune Solutions Ltd) and wealth advisory services (Shriram Wealth Advisors).
The shareholding in Shriram Capital, besides the roughly 30% held between Piramal and TPG, looks like this: South Africa-based Sanlam Group owns 26% and Shriram Ownership Trust and Shriwell Trust hold 30.7% and 13.4%, respectively.