Private equity major TPG Capital is gearing up for an exit from both the lending businesses of the $9 billion Shriram Group.
TPG Capital is taking 25 per cent stake in the consumer lending firm Shriram City Union Finance Ltd after the Competition Commission of India (CCI) gave it the approval to merge two group companies. The deal comes after TPG Capital picked up stake in the investment holding company, Shriram Retail Holdings, in 2008.
According to VCCEdge, the database platform of VCCircle, TPG Capital spent Rs 654 crore for its stake in the holding company (and hence, Shriram City). At the current market capitalisation of Shriram City, the TPG stake is worth Rs 1,160 crore, giving it 1.78x multiple.
Shares of Shriram City Union fell 1.37 per cent to Rs 882.50 a piece on the BSE at 12:50 pm on Wednesday, giving the company a market cap of Rs 4,633.13 crore.
The deal involves a merger of two group holding companies with Shriram City Union, which will give liquidity to TPG Capital. The deal will also consolidate the Shriram Group’s shareholding in NBFC businesses – Shriram Transport Finance and Shriram City Union Finance – under Shriram Capital.
The announcement comes after TPG completed a similar process with Shriram Transport, where it recently picked up 20.28 per cent stake for its stake in another holding company. In Shriram Transport, TPG’s stake is worth over Rs 5,000 crore.
The deal structure
First of all, Shriram Enterprise Holding will merge or amalgamate with its parent company, Shriram Retail Holdings (both are investment holding companies with no operations). After that, the consolidated Shriram Retail Holdings will amalgamate with Shriram City Union.
While Shriram Capital holds 51 per cent stake in Shriram Retail Holdings, the rest 49 per cent is held by the TPG Capital entity, TPG India Investments I, Inc. After the merger of Shriram Retail Holdings, both Shriram Capital and TPG will hold a direct stake in Shriram City Union.
After the transaction, Shriram Capital will hold 30.4 per cent stake while TPG Capital will have 25.04 per cent stake in Shriram City Union. The rest will be held by public shareholders including ICICI Venture, Norwest Venture Partners and Bessemer Venture Partners.
For Q2 FY13, Shriram City reported 68 per cent increase in net interest income (NII) to Rs 400 crore, with profit after tax (PAT) up 33 per cent to Rs 110 crore. The assets under management (AUM) stood at Rs 15,929 crore, up 7 per cent QoQ and 59.5 per cent YoY.
Over 40 per cent of its AUM is in loans against gold and around 32 per cent in small enterprise financing. The remaining portfolio is distributed among auto loans, two-wheelers, consumer durables and personal loans.
(Edited by Sanghamitra Mandal)