Leading private equity firm Newbridge Capital has decided to invest $100 million (Rs 448 crore) in the used-truck financing business in India by taking a 49 per cent stake in Shriram Holdings (Madras) Pvt Ltd.
Shriram Holdings is the holding company of the Shriram group, which is the country's largest player in the business. The deal puts a valuation of Rs 915 crore (Rs 9.15 billion) on the company.
According to R Thyagarajan, the chairman of the Shriram group, this private equity investment is the largest in a non-banking finance company.
Newbridge Capital, which will acquire the shares through a preferential allotment, now has the option of being represented on the board of Shriram Holdings.
At a press conference, Managing Director of Shriram Transport Finance R Sridhar said, through the holding company Newbridge Capital would invest Rs 140 crore (Rs 1.4 billion) in Shriram Transport Finance, Rs 130 crore (Rs 1.3 billion) in Shriram Investment and Rs 30 crore (Rs 300 million) in Shriram Overseas Finance in the first phase.
The remaining Rs 148 crore (Rs 1.48 billion) will be issued as warrants with Newbridge Capital having the option to exercise the warrants before 18 months.
Thyagarajan said with the investments from Newbridge capital, Shriram would be able to mobilise an additional Rs 5,000 crore (Rs 50 billion) for second-hand truck financing. The group's truck financing business is worth about Rs 5,000 crore.
This is the second big-ticket private equity investment in the Shriram group's used-truck financing business this year.
In January, Mauritius-based private equity fund ChrysCapital had picked up a 20.60 per cent stake each in Shriram Transport Finance, Shriram Investments and Shriram Overseas Finance for a total investment of Rs 100 crore (Rs 1 billion). The three companies are to be merged into one single entity shortly.
Shriram Investments, Shriram Transport Finance and Shriram Overseas Finance will be merged by the year-end. The merger of Shriram Investments with Shriram Transport Finance will create an entity with a balance sheet size of Rs 3,400 crore (Rs 34 billion) -- March 2005. In addition to assets on its books, the companies manage assets of about Rs 2,600 crore (Rs 26 billion) for banks.
The Shriram group has already seen investments from Citicorp Finance (India) of the Citigroup, UTI Bank, Reliance Capital and the Netherlands-based FMO, a development financial institution.
Its board of directors has also given its approval to raise global depository receipts of up to $60 million. But Thyagarajan refused to say when the company would be raising it.