Buyout giant TPG is now picking majority stake in Chennai-based Shriram Group's consumer retail finance business. As against the earlier proposed deal where TPG was to pick 49% in the holding firm Shriram Retail Holdings for Rs 530 crore, now the private equity major is going to buy 55% for Rs 805 crore in the company.

The deal, one of the few PE deals this year where the investor has picked a majority stake in an Indian firm, will give TPG control of Shriram City Union Finance, the public listed retail lending business of the Shrirams. Shriram Retail Holdings, presently a privately held entity of the promoters, owns 51% in Shriram City Union Finance.

As per this report, TPG will acquire 1.83 million equity shares of Shriram Retail Holdings at Rs 2,388.8 apiece, along with 1.53 million warrants convertible into equity at the same price. Thus, TPG would spend Rs 438 crore for buying the equity and Rs 365 crore for picking up the warrants. This deal will value Shriram Retail Holdings at around Rs 1,465 crore. This is also the market cap of Shriram City Union Finance.

The deal will also trigger an open offer for the shareholders of Shriram City Union Finance. While on the one hand the deal involves change in ownership of the firm holding 51% in Shriram City Union Finance, even otherwise, TPG's beneficial stake(55% of 51% ~ 28%)in the listed company would be more than the 15% level which necessitates a mandatory open offer.

Established in 1986, SCUF is a deposit-accepting non-banking financial company specialising in small-sized retail finance. With over 633 outlets across the country, it has presence in consumer durables and automobiles financing besides personal loans and small business loans. During FY08 it had net profit of Rs 87.6 crore on net sales of Rs 606 crore. The firm had reserves of Rs 377.6 crore at the end of March 2008.

It is just one of the two national retail financers of segments like consumer durables, the other being Bajaj Auto Finance (in which ChrysCapital has invested). Other large national players such as ICICI and Citibank had sometime back folded their loss making durable financing business.  

One interesting aspect of the transaction is that the Shriram Group is selling majority stake. It had been looking to sell minority stake in various businesses and early this year was negotiating a deal for Shriram Credit, where Goldman Sachs was to pick up 20% in the broking and lending firm for Rs 300 crore. However, this deal did not materialise, reportedly due to differences over valuations.


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