WestBridge buys into PE-backed NBFC Cholamandalam, IFC part exits with 3x

Public markets focused Indian private equity firm WestBridge Capital has struck its fourth new investment since January 1 by picking shares of Chennai-based non-banking finance company (NBFC) Cholamandalam Investment & Finance Co Ltd. The deal involved purchase of shares from another private investor International Finance Corp (IFC), the private sector investment arm of the World Bank.

The deal is worth Rs 86 crore (over $14 million) for 2.1 per cent stake.

IFC had previously invested in two tranches around Rs 115 crore in Cholamandalam. It converted preference shares worth Rs 100 crore in mid-2010 and in the last quarter of the same year put in Rs 15 crore more though a preferential issue.

It held 8.26 per cent stake as of December 31, 2013 and sold a quarter of it on Friday.

Its average cost of purchase of the shares is pegged at around Rs 97 a unit and the latest deal has been struck at Rs 287 or almost three times the principal.

For WestBridge, which has previously invested in microlenders like SKS Microfinance and Equitas, this is first new investment in the NBFC space since it bet on Dewan Housing Finance in late 2011.

It is also its fourth new investment since the beginning of the year after backing artificial leather maker Mayur Uniquoters and snacks maker DFM Foods. On Friday, it also bought into AIA Engineering.

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 and has a loan portfolio of around Rs 22,000 crore (over $3 billion). 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.

Besides IFC it counts investors like Norwest Venture Partners, Creador Capital, Multiples Alternate Asset Management, Amansa Capital Pvt Ltd and Aquarius Investments.

While IFC has sold part of its equity holdings in the company, early this year it said it is lending Rs 315 crore in Cholamandalam in the form of a tier II debt investment by subscribing to unsecured non-convertible debentures (NCDs). This investment would allow Cholamandalam to meet its funding requirements from a diversified source and assist in reducing reliance on bank borrowings as well as help the company scale up its operations in several low-income states.

IFC has also sold shares of a few other public listed portfolio firms in India since January 1, including Granules India, Samson Maritime and LG Balakrishnan & Bros, according to VCCEdge, the data research platform of VCCircle.

(Edited by Joby Puthuparampil Johnson)

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