South Africa’s financial services major Sanlam is picking up 26 per cent stake in Shriram Capital (which holds stake in the Shriram Group’s financial service businesses) for Rs 1,225 crore or $266 million (1.9 billion South African Rand). Besides the cash investment, Sanlam will also roll up its 26 per cent stake in the general and life insurance ventures into Shriram Capital.
Shriram Capital has interests in businesses like insurance, commercial financing, retail financing, wealth products distribution and stock broking.
Currently, Shriram Capital holds 51 per cent stake in both Shriram Life Insurance and Shriram General Insurance, which is expected to go up to 77 per cent after this transaction. Post-transaction, Shriram Capital is also expected to hold around 21 per cent stake in Shriram Transport Finance Company (which has expressed interest for a banking licence) and about 27 per cent holding in Shriram City Union Finance.
According to its website, Shriram Capital, on a consolidated basis, has a customer base of 6.4 million, 33,000 employees across 2,000 offices and a net profit of over Rs 1,000 crore, with assets under management of over Rs 40,000 crore.
“The existing management and governance arrangements in the insurance ventures, as well as Sanlam’s entitlement to acquire another 23 per cent in both ventures, will remain unchanged. The transaction is still subject to regulatory and SARB approval,” a Sanlam statement said.
The Rs 30,000 crore Shriram Group started out over three decades ago with a chit fund business and has now expanded to areas like power, real estate and engineering, besides financial services. The group's various businesses have raised funding from more than a dozen different private equity firms.
Global private equity major TPG Capital perhaps has the largest exposure to the group, with stakes in holding companies. Earlier this year, TPG got FIPB approval to invest Rs 1,180 crore in Shriram Capital for 15 per cent stake, although the current status of this deal cannot be ascertained.
The deal will help Sanlam broaden its financial services exposure in a growth market and help share synergies through closer co-operation. Sanlam also has an exposure to the Indian financial services space through its 8.25 per cent stake in SMC Global Securities.
“A Sanlam investment in Shriram Capital better aligns the group’s interest with that of our India partner and provides Sanlam with access to the strong growth and profit-generating capacity of the financing entities. This investment is in line with our strategy to diversify both geographically and into broader financial services. We are pleased to build on our already strong relationship with Shriram, which has developed through our involvement with the two insurance entities over the past five years,” said Dr Johan van Zyl, Sanlam’s group CEO.
The deal between Sanlam and Shriram, which has been in the works for a while, comes as other overseas players are looking at India.
Last week, Japan’s largest life insurance firm Nippon Life Insurance Company signed an agreement with Reliance Capital, to expand the scope of their existing business partnership in the Indian insurance space to other financial services, such as asset management.