Financial Daily from THE HINDU group of publications
Wednesday, Sep 21, 2005
Money & Banking
Corporate - Mergers & Acquisitions
Newbridge to invest $100 m in Shriram truck finance cos
Mr R. Thyagarajan, Chairman, Shriram Group of Companies.
Chennai , Sept. 20
NEWBRIDGE Capital, a private equity company, will invest $100 million (around Rs 450 crore) in the three companies of the Chennai-based Shriram group that are engaged in truck financing Shriram Investments, Shriram Transport Finance Company and Shriram Overseas Finance.
However, the investment will be through a holding company, Shriram Holdings (Madras) Pvt Ltd.
Newbridge will pick up 49 per cent of Shriram Holdings (Madras) for $100 million. The remaining 51 per cent will be held by individual members mainly employees of Shriram companies who constitute the Shriram group.
After extraordinary general meetings of the three truck finance companies to be held on October 17, Shriram Holdings (Madras) will be pick up shares in the three companies through a preferential offer, for Rs 300 crore. It will also get warrants that give it the option to pick up more shares in the three companies over the next 18 months.
If Shriram Holdings (Madras) converts the warrants into shares it intends to it will spend another Rs 175 crore for that.
This preferential offer will trigger the provisions of take-over regulations and consequently, Shriram Holdings will have to acquire up to 20 per cent of equity of these companies through a public offer, which is likely to take place in December.
However, Shriram Holdings (Madras) will end up having only one subsidiary, instead of the three, because the three companies are to be merged into one entity. The process of the merger of the three companies is on and is likely to be over by early next year.
In the merged entity, Shriram Holdings (Madras) will have a stake of about 45 per cent. Public will have another 30 per cent and the rest will be held by the constituents of the Shriram group.
Early next year, the merged entity proposes to raise at least $60 million through a GDR issue. Post-GDR issue, Shriram Holdings (Madras') holding in the merged company will stand reduced to about 40 per cent.
At a press conference here today, Shriram group's Chairman, Mr R. Thyagarajan, said that the truck finance business was booming and fleet operators were hungry for funds.
The Shriram group is predominantly into financing purchase of second-hand trucks. Used truck loans account for about 80 per cent of the Rs 6,000-crore loan book.
Used truck financing is an area where not many players are active. Many non-banking finance companies and some banks do fund used truck purchases, but usually not trucks that are more than three years old.
Shriram group has built up expertise in funding trucks that are even 10-15 years old.
Over the last few years, it has been cashing in on this expertise. Several financial companies have either bought equity stakes, lent money or entered into re-financing arrangements with the Shriram group. They include Citibank, UTI Bank, FMO of The Netherlands and ChrysCapital. Newbridge joins this list.
Mr R. Sridhar, Managing Director, Shriram Truck Finance Company, told Business Line today that the group expected a 25-per cent increase in its loan book, taking the outstanding loans by Rs 1,500 crore to Rs 7,500 crore.
The Shriram group will have other holding companies, for insurance business and other companies that do consumer and SME financing. Shriram Holding (Madras) is the holding company only for the truck financing companies.
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