Mumbai: Hero FinCorp Ltd, the financial services arm of India’s largest two-wheeler maker Hero MotoCorp Ltd, is close to raising around $100 million from private equity (PE) investors, two people aware of the development said.
Singapore investment firm Temasek Holdings Pte. Ltd and India-focused PE fund ChrysCapital LLC are in the final stages of talks with Hero, one of the two persons said. The deal could be closed within a couple of days, this person added, on condition of anonymity.
According to this person, both Temasek and ChrysCapital are equally keen on a stake and shares could be split between the two.
Hero FinCorp promoters, who had initially planned to sell 15% stake for $85 million may instead sell about 20-25% stake for $100-120 million, the second of the two persons cited above said.
Hero FinCorp planned to raise $100 million ( ₹ 650 crore) by selling a significant minority stake to PE funds to fuel its expansion into new areas, Mint reported in November last year. The company hired global investment bank Credit Suisse Group AG to find buyers and discussions had started, the Mint report added.
Spokespersons at Temasek and ChrysCapital declined to comment while an e-mail sent to Abhimanyu Munjal, chief executive officer at Hero Fincorp, and a spokesperson at Credit Suisse on Thursday went unanswered.
Hero FinCorp, which took birth as Hero Honda FinLease Ltd in December 1991, recorded a turnover of ₹ 771 crore in 2015-16 against ₹ 298.62 crore in 2014-15.
The non-banking finance company (NBFC) has a presence at over 1,000 retail financing touch-points across Hero MotoCorp’s network and has partnered with more than 200 satisfied corporate clients, according to the company website.
Hero FinCorp started out by extending working capital loans and medium-term finance to component suppliers and dealers of parent firm Hero MotoCorp, then called Hero Honda Motors Ltd. It began giving loans to customers in April 2013. In 2014, it ventured into loans against property, loans for small and medium enterprises and commercial loans. The firm claimed to have over 350,000 active two-wheeler customer loans in June 2015.
“We are an under-penetrated sector as far as financial services are concerned. That’s why banks and NBFCs have shown a track record of consistent growth and strong financial performance and healthy ROE (return on equity). Well-managed NBFCs are liked by financial sponsors for these reasons as also that there is a limited opportunity for them to participate in the banking sector due to ownership limitations (5%) and absence of governance rights," said Pramod Kumar, managing director, Barclays India.
Temasek already has exposure to India’s NBFC sector with its investments in Mahindra & Mahindra Financial Services Ltd and Fullerton India Credit Co. Ltd.
ChrysCapital had past investments in NBFCs such as Shriram Transport Finance Company Ltd, Bajaj Auto Finance Ltd and Mahindra & Mahindra Financial Services. It currently has a stake in NBFCs such as Rajasthan-based Au Financiers and Magma Fincorp.
In the last few years, NBFCs have attracted attention from large global PE funds. In 2015, PE investments in India’s financial services sector grew 83% to $2.2 billion from $1.2 billion in 2014. Out of this, NBFCs and other services (diversified financials) saw a growth of 200% at $1.9 billion (against $643 million in 2014) compared with other sectors like banks ($50 million) and insurance ($250 million), according to 2015 VCCedge data.
“One can look at the track record of past performance and returns on financial sponsors’ investments in Shriram Group companies, M&M Financial Services and SKS Mirofinance," Kumar said.
Other large PE deals in the NBFC space include Bain Capital’s 10% stake purchase in L&T Finance Holdings Ltd, the NBFC arm of Larsen and Toubro Ltd (L&T), for a little over ₹ 1,300 crore in September last year, and Apax Partners Llp’s acquisition of a 20.37% stake in Shriram City Union Finance for ₹ 2,366.27 crore in May 2015.