MUFG pays a 16.5% premium for Shriram Finance stake — What MUFG saw that markets missed

MUMBAI: MUFG Bank, a subsidiary of the Mitsubishi UFJ Financial Group (MUFG), is set to invest $4.4 billion ( ₹39,618 crore) for a 20% stake in Shriram Finance Ltd (SFL), marking one of the largest cross-border transactions this year and adding to the growing pipeline of India-Japan deals in recent months.

SFL, India’s second-largest non-banking financial company (NBFC) by assets under management (AUM), announced the deal in a stock exchange filing on Friday. It said the fund infusion will enhance its capital adequacy, strengthen its balance sheet, and provide long-term growth capital.

The investment will be made through a preferential issuance of equity shares, the company said in the filing, adding that the collaboration is expected to unlock synergies in technology, innovation, and customer engagement, driving sustainable growth while improving access to low-cost liabilities.

KPMG and JPMorgan were the financial advisors to MUFG Bank. For SFL, Wadia Ghandy & Co. was the legal advisor.

The purchase — at a company valuation of ₹1.98 trillion — comes at a premium of almost 16.5% to the ₹1.7 trillion market capitalization of SFL on Friday.

Shares of SFL climbed to a 52-week high of ₹914.10 in intraday trading on Friday following the announcement, and closed at ₹901.75 on the BSE, up 3.74% from Thursday. Notably, the SFL stock has risen 50% this year.

The transaction combines SFL’s established domestic franchise and extensive distribution network with MUFG Bank’s global expertise and financial strength. One of the world’s largest banks, MUFG Bank has a global expertise spanning 50 countries and its services include commercial and investment banking products.

SFL, which operates more than 3,000 branches across the country, according to its website, reported total income of ₹41,859.47 crore and net profit of ₹9,761 crore in FY25. The company manages assets of about ₹2.81 trillion as of September, according to data from company filing.

Mint reported on 17 December that MUFG plans to invest $4.5 billion-5 billion for a 20% stake in SFL, valuing the company at $22-25 billion.

A win-win deal

“The entry of MUFG as a key investor reinforces global confidence in India’s financial services sector,” Umesh Revankar, executive vice chairman of SFL, said in the statement.

In a separate statement, MUFG Bank said that by providing growth capital to Shriram Finance, it “we will help drive expansion in segments such as new commercial vehicles and MSME, while enhancing funding capacity and profitability through improved creditworthiness”.

For MUFG, the investment is a strategic step to establish a foundation in India’s micro, small and medium enterprises (MSMEs) and retail markets, and to capture the country’s growing domestic demand.

The MUFG Group has been in India for more than 130 years. So far, it has invested about $1.7 billion, with the SFL deal being the largest.

“The MUFG–Shriram transaction is a strong endorsement of India’s financial services growth story and reflects rising strategic interest from Japanese institutions,” said Raghav Gupta, joint CEO of IIFL Capital, an investment banking and financial services company. “This is not just capital infusion, but a long-term partnership that brings balance-sheet strength, global risk expertise and governance depth.”

He added that the deal’s premium is justified given the scarcity value of scaled, profitable NBFC platforms and the benefits such stakes offer beyond listed market valuations.

“We should expect more such large, strategic India-Japan deals, particularly in lending, wealth and asset management,” Gupta said. “For the industry, this sets a valuation benchmark and could prompt well-capitalised players to proactively raise growth capital while global interest remains strong.”

Adding to momentum

MUFG’s investment in SFL has added to the momentum of activity in the financial services space in the Indo-Japan corridor. Notable transactions this year include Mizuho’s majority investment in Avendus earlier this week and Sumitomo Mitsui Banking Corp’s acquisition of a stake in Yes Bank in May.

Further, 2025 has also seen some of the largest strategic M&As as well as financial sponsor-led deals in recent times.

These include Emirates NBD’s acquisition of a majority stake in RBL Bank for $3 billion in October, and three deals in July — 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.

Further, in October, global private equity firm Blackstone acquired a 9.9% stake in Federal Bank for $705 million, and Abu Dhabi-based IHC, through its affiliate Avenir Investment RSC Ltd, bought a 43.46% stake in Samman Capital for $1 billion.

SFL’s long history

Established as Shriram Transport Finance Company Ltd (STFC) in 1979 by R. Thyagarajan along with A.V.S. Raja and T. Jayaraman, the company listed about five years later. It attracted investments from Telco (now Tata Motors) and Ashok Leyland in the following years.

Over almost five decades, the company has undergone several shifts and strategic changes leading up to the Japanese giant’s investment. In the mid-2000s, STFC merged with Shriram Industrial Holdings Limited (SIL) and Shriram Overseas Finance Limited (SOFL), and received investments from private equity firms like ChrysCapital and TPG.

About three years ago, Shriram City Union Finance and Shriram Capital were merged into Shriram Transport Finance Company and renamed Shriram Finance. This entity sold an 84.4% stake in Shriram Housing Finance to a Warburg Pincus affiliate for ₹3,929 crore in 2024.

The promoters own 25.39% of SFL, largely through group holding company Shriram Capital, which holds a 17.85% stake. The remaining shareholding is held by public and institutional investors, including the government of Singapore, which owns 5.41%, and the Monetary Authority of Singapore, which holds 1.2%.

Shriram Capital is owned by the Shriram Ownership Trust and South Africa’s Sanlam, and also holds a stake in the group’s insurance joint venture with Sanlam, according to various reports.

Mint reported earlier this year on the NBFC reworking its lending strategy amid slower growth in vehicle finance to focus on emerging segments such as renewable energy, merchant credit, fisheries, and supply chain finance.

It also entered merchant finance through partnerships with Paytm and PhonePe, disbursing ₹100 crore and ₹50 crore monthly, respectively. It finances merchants linked to Walmart’s Best Price, too.