Private equity giant Kohlberg Kravis Roberts & Co. L.P. (KKR), along with International Finance Corporation (IFC), are investing Rs 440 crore ($100 million) in Kolkata-based non-banking finance company Magma Fincorp, to support its growth plans in existing businesses, in addition to newer areas.
While KKR is investing around Rs 236 crore ($52.4 million) to buy 14.95 per cent stake, IFC is pitching in with Rs 202.4 crore ($45 million). IFC had earlier disclosed that it was looking to invest $45 million as part of a $100 million fundraising by an unnamed Indian NBFC. (See our earlier copy: ). While IFC will own 12.8 per cent of the company post-dilution, promoters’ holding will come down to 29 per cent from 41.6 per cent at present.
Magma Fincorp scrip shot up 8 per cent to hit Rs 74.95 a share, valuing the firm at Rs 972 crore or $216 million on Monday, but fell 2.4 per cent and was trading at 73.15 in early market hours on Tuesday. The shares to KKR and IFC are to be allotted at Rs 88 per share, 20 per cent premium to current price.
The company clocked net profit of Rs 120 crore for the year ended March, 2011, and is currently valued 8x its trailing net earnings.
“This is a long-term investment in Magma, a company led by enterprising promoters who have built an impressive platform of sound risk management and credit underwriting capabilities. We believe that our partnership will help propel the growth in rural and semi-urban segments by promoting consumer credit, agri lending and corporate lending to small and medium scale enterprises,” said Sanjay Nayar, country head of KKR in India.
The proposed investment will provide Magma with strategic capital and will enable it to expand its footprint in semi-urban and rural areas, as well as in low-income Indian states of Bihar, West Bengal, Orissa, Chattisgarh, UP and Rajasthan.
IFC had earlier said that the money would help the NBFC expand access to finance for the micro, small and medium entrepreneurs. It also wants to enhance its rural presence by deepening its existing branch network through the hub-and-spoke model. The money will help the company to set up and expand its low-income housing finance business through a subsidiary in India. It has further plans to use its current financing model in select countries in South Asia and Africa.
“Maintaining our aggressive growth pattern, we expect to increase our disbursements by 50 per cent in FY12, reduce our dependency on securitisation and maintain a healthy NIM via greater contribution from higher yielding products. With this capital infusion, we believe Magma is well-positioned to capitalise on its existing business opportunities and increase its thrust into new products, in addition to accretive M&A,” said Sanjay Chamria, vice-chairman & Managing director of Magma.
Ernst & Young (Advisory) and Wadia Ghandy advised Magma on the transaction. Ernst & Young (Transaction Advisory), McKinsey & Co., Simpson Thacher & Bartlett, AZB Partners and Kotak Mahindra Capital advised KKR on the transaction.
Magma Fincorp provides a bouquet of financial products including financing of utility vehicles, cars, commercial vehicles, construction equipments, tractors and SME loans. It has a base of over 2.36 lakh customers and has assets of Rs 10,907 crore ($2.4 billion) under management. The company has 171 branches in 20 states and one Union Territory, and employs about 5,150 people.
It has also signed a joint venture with HDI Gerling, part of the Talanx Group (Germany’s third largest insurance group), to start a general insurance company in India. This unit has received R1 license from the insurance regulator.