Move Aside Kotak, Goldman Sachs Picks Up 20% In Shriram Credit For Financial Services Foray
Goldman Sachs Group, which recently announced that it would get into a whole gamut of financial services like asset management, NBFC and broking, has picked up a 20 per cent stake in Chennai-based non-banking finance company (NBFC) Shriram Credit Company Ltd.
The global investment banking firm’s Mauritius based investment arm GS Strategic Investments Ltd will invest Rs 300 crore ($75 million) for the stake valuing the company at Rs 1,500 crore. It has also retained an option to increase the stake upto 25 per cent of the share capital of the company.
The deal is seeking the approval of the Foreign Investment Promotion Board, a body in finance ministry which approves foreign transactions. GS’ acquisition of a minority stake in Shriram Credit is surprising since the invesment banking firm had said it planned to get into asset management business and other financial services like NBFC in a big way (read: solo). It had sold its minority stake in its joint venture with Kotak Mahindra Group in 2006 to the majority shareholders. It had stakes in Kotak Securities and Kotak Mahindra Capital which had similar lines of business activities. GS, which is currently engaged in investment banking and also proprietary private equity investing in India, was expected to foray into financial services business solo rather than a minority partnership. Interestingly, that is not the case. However, the advantage here is Goldman gets to keep the entire investment banking pie, while earlier it was sharing the booty (and that too a majority) with Kotak.
Shriram Credit is an unlisted, non-deposit taking NBFC, and is part of the Shriram Group which has presence in transport finance and engineering, procurement and construction space.
Shriram owns a financial products distribution subsidiary (Fortune Solutions), and it plans to acquire a 90 per cent stake in group’s stock broking and commodity trading outfits (Shriram Insight Share Brokers and Insight Commodities and Futures Pvt Ltd).
Essentially, GS Group is getting a presence in the entire broking, commodity trading and financial products disctribution business through the stake acquisition.
In a recent interview to a newspaper, L. Brooks Entwistle, Managing Director and CEO of Goldman Sachs India, had said they were preparing to launch an asset management company, a primary dealership unit to buy and sell securities, and then a non-banking finance company (NBFC) for an entry into the loan business as well as private wealth management and commodities. These forays would now be through Shriram Credit.
