Global private equity firm Apax Partners is investing Rs 500 crore (around $83.2 million) in non-banking finance company Cholamandalam Investment & Finance Company Limited in a transaction which will give it 8 per cent equity stake in the future, according to a stock market disclosure.
The PE firm will subscribe to 50 million compulsorily convertible preference shares (CCPS) at a face value of Rs 100 per share. The CCPS will convert into equity shares at Rs 407 each, translating into an issue of 12.2 million shares giving 8 per cent of the diluted equity base.
The CCPS will bear a dividend coupon of 1 per cent per annum payable from the date of allotment of CCPS till the date of conversion into equity shares. The CCPS shall be converted into equity shares at the expiry of 12 months from the date of allotment or earlier.
The NBFC will use the funds towards augmenting its capital base for future growth and strengthen the tier-1 capital adequacy ratio.
Shashank Singh, managing director and head of Apax’s India office said, “We believe in the long-term secular growth runway of Indian retail financial services and Cholamandalam is well positioned in this space, with an outstanding management team and exposure to attractive lending segments.”
For Apax, this is the sixth India-related transaction in almost as many years. The PE firm had first invested in India during FY08 in the healthcare sector by picking a stake in Apollo Hospitals, which it exited last year.
It had gone slow sealing just one more deal thereafter in the next five years, backing US-based iGate to acquire Patni Computer Systems Ltd in 2011.
However, the PE firm had been pretty active over the last one year. Last year it acquired outsourced product development firm GlobalLogic and over the past few months one of its public markets focused investment entities had picked small stakes in listed firms like Persistent Systems and KPIT Cummins. In effect, Cholamandalam is its fourth new India related deal in the last twelve months.
Axis Capital was the exclusive transaction advisor to Cholamandalam while Kotak Mahindra Capital Company advised Apax. Khaitan & Co and Kirkland & Ellis LLP were legal counsel for Apax Funds on this transaction.
Cholamandalam, a financial services arm of Murugappa Group, primarily focuses in the rural and semi-urban sector with 90 per cent presence across tier III and tier IV towns. Its asset under management is around Rs 25,000 crore. The NBFC's core business segments include vehicle finance, home equity loans, corporate finance, stock broking and distribution of financial products.
The firm operates through more than 500 branches in 22 Indian states, including nine low-income states. It aims to increase its customer base by 400,000 over the next few years.
The NBFC counts names like IFC, Norwest Venture Partners, Creador Capital, Multiples Alternate Asset Management, and WestBridge as existing investors.
(Edited by Joby Puthuparampil Johnson)