Shriram to retain control at Shriram Finance after MUFG deal
The deal leverages Shriram’s unique ownership structure, which allows for potential future management control, and its superior return on assets compared to traditional banks.
New Delhi: Indian financial conglomerate Shriram Group will continue to hold control over the board and management of Shriram Finance Ltd, India's second largest non-banking finance company by assets managed, after Japan's MUFG Bank completes its $4.4 billion investment for a 20% stake in the Chennai-headquartered business, company executives on both sides said on Monday.
MUFG will be classified as a minority public shareholder with board and management control vested with the Shriram Group, said Parag Sharma, managing director & CEO, Shriram Finance, at a press conference.
“We are happy with being at a 20% stake, under which MUFG will be classified as a minority public shareholder with the right to appoint two nominee directors," said Yasushi Itagaki, senior managing corporate executive and Group COO-I, MUFG.
“This move is aimed at capturing domestic demand, particularly in the SME segment. Through this partnership, we aim to work across roads, infrastructure and value chains that underpin India’s growth."
The fund infusion for a 20% stake in Shriram Finance will result in a proportional dilution by public shareholders and promoters. Before the transaction, promoters and the promoter group held 25.3%, while other public shareholders held 74.7% in Shriram Finance. After MUFG’s investment, the Japanese company will hold 20%, other public shareholders 59.7%, and promoters 20.3%.
MUFG Bank, a subsidiary of the Mitsubishi UFJ Financial Group (MUFG), said it was acquiring a 20% stake in Shriram Finance Ltd for $4.4 billion ( ₹39,618 crore), valuing the Indian NBFC at ₹1.98 trillion ($23.5–24 billion), as disclosed in a stock exchange filing on Friday.
Mint had previously reported that MUFG was in talks to invest $4.5–5 billion for a 20% stake, valuing Shriram Finance at $22–25 billion.
Shriram Finance is engaging with rating agencies and is evaluating the possibility of a ratings upgrade from its current AA+ level, which could help lower borrowing costs, Umesh Revankar, executive vice chairman, told Mint.
He added that credit spreads between bonds and bank borrowings could narrow over time as the balance sheet strengthens.
Following the capital infusion, leverage is expected to decline to around 2.6x from 4.3x, while return on assets is projected to improve from about 2.8% to 3.4–3.5% starting next year as borrowing costs decrease.
The firm expects to open about 100–150 new branches over the next two years, which could lead to the creation of around 3,000–5,000 jobs, he added. Shriram Finance operates more than 3,000 branches nationwide.
The company intends to use the partnership to tap Japanese OEMs in India as well, though specific details weren't disclosed.
Regarding the non-compete arrangement, Revankar stated that the promoter group has the option to start another business in the same segment.
The non-compete clause is intended to ensure that no competing business is run alongside Shriram Finance, thereby allowing SFL to continue its operations without overlap.
Right choice
MUFG’s choice of Shriram Finance is strategically significant, as non-banking financial companies offer “greater flexibility in ownership and influence than private banks, where voting rights for any single shareholder are capped at 26%, limiting the ability of global investors to exercise real strategic influence even with large economic ownership," said Ninad Jadhav, equity research analyst at LKP Securities.
Shriram is particularly attractive as it does not have a dominant promoter, reducing friction for a long-term investor to deepen involvement, explained Jadhav.
The promoter holds about 25% in Shriram Finance, largely through Shriram Capital, which is owned by an employee trust, compared with peers such as Cholamandalam Investment and Finance, where the Murugappa Group holds around 49%.
Mint had reported earlier that Shriram Finance was reshaping its lending strategy amid slowing vehicle finance growth, pivoting to segments such as renewable energy, merchant credit, fisheries and supply chain finance. It has also dipped its toes into merchant finance through Paytm and PhonePe, disbursing about ₹100 crore and ₹50 crore a month, respectively, and finances merchants linked to Walmart’s Best Price.
For MUFG, one of the world’s largest banks with operations in 50 countries, the deal gives it a foothold in India’s MSME and retail lending markets riding the country’s domestic demand. The group has been present in India for over 130 years and has invested about $1.7 billion so far, making the Shriram Finance deal its largest to date.
It is one of the largest cross-border deals this year, adding to a swelling India–Japan deal pipeline.
MUFG’s investment adds to a pickup in deal activity along the India–Japan financial services corridor. Recent transactions include Mizuho’s majority buyout of Avendus earlier this week and Sumitomo Mitsui Banking Corp’s stake purchase in Yes Bank in May.
The year has also thrown up a string of large strategic and sponsor-led deals. Emirates NBD agreed to acquire a majority stake in RBL Bank for $3 billion in October. July saw three big-ticket transactions—Tata Motors’ $4.5-billion acquisition of Iveco, Capgemini’s $3.3-billion buyout of WNS Global Services, and Schneider Electric’s $6.4-billion deal involving Lauritz Knudsen Electrical & Automation.
In October, Blackstone picked up a 9.9% stake in Federal Bank for $705 million, while Abu Dhabi-based IHC, via its affiliate Avenir Investment RSC Ltd, bought 43.46% of Samman Capital for $1 billion.
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