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Shriram Group will consolidate its financial services businesses under a single entity as part of an expansive restructuring that is expected to lead to exits of Piramal Group and US private equity giant TPG Capital from the group’s unlisted holding firm, Shriram Capital Ltd.

Under the restructuring plan unveiled on Monday, unlisted Shriram Capital will merge with Shriram City Union Finance Ltd and Shriram Transport Finance Co. Ltd to create the nation’s largest retail finance non-banking financial company (NBFC).

This will result in the exits of Ajay Piramal-led Piramal Group and TPG from Shriram Capital. Both the investors were looking to exit Shriram Capital for the past few years after a failed attempt to merge with IDFC Bank in 2017. IDFC Bank subsequently merged with private lender Capital First, promoted by Warburg Pincus.

Synergy play
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Synergy play

Endorsing the merger plan, Ajay Piramal, chairman, Piramal Enterprises Ltd, said, “While they emerge as the largest retail finance NBFC, it also opens up immense opportunities for them with the synergies that transpire."

Piramal bought a 20% stake in Shriram Capital for 2,014 crore in 2014. Piramal also holds 10% in Shriram City Union.

TPG 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.

Shriram Capital’s subsidiary Shriram Transport Finance is India’s largest commercial vehicle financier, while Shriram City Union Finance is a diversified NBFC that primarily lends to the underserved segment.

Shriram Capital, through its associates, has a customer base of about 21.65 million, managed by around 67,000 employees across 4,000 branches. The company posted a net profit of 4,900 crore in FY21 and has assets under management or AUM of over 2 trillion as of 30 September.

In a statement, the company said the merger would be carried out through a composite scheme of arrangement and amalgamation. As part of the plan, shareholders of Shriram City Union will get 1.55 shares of Shriram Transport for every share held. Similarly, shareholders of Shriram Capital will get 0.0978 shares of Shriram Transport for every share held.

The transaction is subject to approval of shareholders of the three companies.

Shriram Group said the consolidation would help the conglomerate combine its lending products comprising commercial vehicle and two-wheeler loans, gold loans, personal loans, automobile loans and small enterprise financing. This will also create a comprehensive cross-sell programme combining insurance, broking and asset management businesses, including their depositors, according to a company statement.

Shriram City Union Finance has AUM of 35,000 crore and a distribution network of about 950 branches. After the merger with Shriram Transport, the merged entity will have a combined AUM of at least 1.5 trillion and a distribution network of more than 3,500 branches. The similarity in the technology architecture of both companies will ensure their branches are interoperable for businesses of each other in a very short time, the statement said.

“The merger will enhance our distribution footprint across all business lines without incurring any incremental capex. The benefits likely to accrue due to synergy and digital initiatives are immense. This merger will also simplify our holding structure eliminating multiple layers," said D.V. Ravi, managing director, Shriram Capital.

According to Shriram Capital, with the amalgamation exercise swelling its customer base, the group’s focus will shift towards creating digital lending products.

“The company intends to soon launch a super-app where all its existing and new lending products would be offered under the Shriram Finance umbrella. This will help customers access the entire Shriram ecosystem with a single click and result in a seamless customer experience," it said.

“Shriram Finance will undoubtedly become the market leader for financial services in rural India," said Umesh Revankar, vice-chairman and managing director of Shriram Transport Finance.

Y.S. Chakravarti, managing director and CEO of Shriram City Union Finance, said Shriram Group has always kept the credit-starved segment of customers at the heart of all its products and innovation. The merger is another step towards simplifying and offering customers solutions to all their financial needs under one umbrella, he added.

Revankar will be vice-chairman of the merged entity and Chakravarti the managing director and CEO.

Morgan Stanley and ICICI Securities acted as financial advisers, while the valuation exercise was done by Bansi C. Mehta & Co. and EY.

HSBC and JM Financial helped with the fairness opinion, which refers to whether a particular deal is fair to shareholders, while PwC will help Shriram Transport and Shriram City Union Finance navigate the post-merger integration process, according to the statement.

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