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MUMBAI : Financier Shriram Capital Ltd plans to merge two of its listed units with itself to help investors Piramal Enterprises Ltd and TPG Capital to easily sell their stakes in Shriram Group companies.

The plan entails merging Shriram Transport Finance Co. Ltd and Shriram City Union Finance Ltd with parent Shriram Capital to create a simpler shareholding structure, three people familiar with the plan said.

“We are looking at a few options like merging both the entities to the parent company and thereby listing it. Also we are still looking at an individual investor who can pick up the entire stake of Piramal and TPG. However, this is going to take a few weeks," said R. Thyagarajan, founder of Shriram Group.

Kotak Mahindra Capital Co. Ltd has been hired to advise on the planned merger and shortlist buyers for Piramal and TPG’s stakes.

Emails sent to Shriram Capital and Kotak Mahindra Capital went unanswered.

On Friday, Ajay Piramal, chairman of Piramal Group, told Mint in an interview that the group’s planned exit from Shriram Capital was on track. “We are going through many different combinations, we have not yet decided. One thing is clear that we will exit. Which is the best way forward for Shriram, that we are discussing," Piramal said.

Piramal bought a 20% stake in Shriram Capital for 2,014 crore in 2014. Piramal also holds 10% in Shriram City Union. Over the past few months, Piramal has been looking for a buyer for these stakes.

TPG Capital holds a 9.4% stake in Shriram Capital, while South Africa-based Sanlam Group owns 26% and Shriram Ownership Trust and Shriwell Trust hold 30.7% and 13.4%, respectively, according to a Crisil ratings report.

“The value of the stake in Shriram being planned to be sold by Piramal is quoted at 4,500-5,000 crore for the prospective buyers, which in turn will value Shriram Capital at around 25,000 crore," one of the people familiar with the development said on condition of anonymity.

If the deal goes through, the proceeds from the stake sale will be used by Piramal to infuse capital into its lending businesses, repay debts of Piramal Enterprises’ promoter entities and provide capital for organic growth.

Piramal had a 9.97% stake in Shriram Transport Finance, but in June sold this stake for 2,300 crore to several institutional investors.

The proposed three-way merger will result in the automatic listing of Shriram Capital, as Shriram City Union and Shriram Transport are both listed entities.

“Private equity firms and foreign sovereign funds have shown a lot of interest to buy stakes in Shriram Group from Piramal and TPG," said the second person, declining to be named.

A merger will lead to the automatic listing of Shriram Cap, as Shriram City Union, Shriram Transport are both listed (Graphic: Sarvesh Kumar Sharma/Mint)
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A merger will lead to the automatic listing of Shriram Cap, as Shriram City Union, Shriram Transport are both listed (Graphic: Sarvesh Kumar Sharma/Mint)

Shriram Capital’s businesses include commercial vehicle finance (Shriram Trasport Finance), consumer and enterprise finance (Shriram City Union Finance), retail stock broking (Shriram Insight Share Brokers Ltd), life insurance (Shriram Life Co. Ltd), general insurance (Shriram General Insurance), financial product distribution (Shriram Fortune Solutions Ltd) and wealth advisory (Shriram Wealth Advisors).

On 30 August, a Piramal Group spokesperson said that since January, Piramal has raised over 23,000 crore in long-term funding through banks, financial institutions and external commercial borrowings. “Also, as previously stated, we intend to bring in further equity of 8,000-10,000 crore into the financial services business, of which 2,500 crore has already been allocated. All of this will be more than sufficient to not only address all repayments, but also to augment business growth in this financial year."

On 8 August, The Economic Times reported that private equity funds Advent International, Blackstone Group, CVC Capital, Carlyle Group and Brookfield placed initial bids to buy around 30% in Shriram Capital as Piramal Enterprises and TPG Capital sought to exit.

Piramal Enterprises and TPG have been looking to exit Shriram Group for two years. Piramal had invested in Shriram Capital with the intent to merge Shriram Capital, the holding company of Shriram Group, with itself. But the merger failed due to the sheer difference in size. Although Piramal had begun taking control of Shriram Group soon after making the investments by replacing key managers across group firms, a merger would have resulted in a large stake dilution in the merged entity for Piramal Group, which was not acceptable.

Shriram Group also tried a merger between Shriram Capital and IDFC Bank Ltd in 2017. But the plan fell through as the two entities failed to agree on an acceptable swap ratio.

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