Shriram Transport plans to raise up to ₹2,000 crore via rights issue

MUMBAI: Commercial vehicle financier Shriram Transport Finance Co. Ltd (STFC) has joined the ranks of lenders planning to raise capital and bolster balance sheets to deal with contingencies and opportunities arising out of the covid-19 crisis with a proposed ₹2,000-crore rights issue, said two people, requesting anonymity.

For the first time in a decade, the lender will tap the equity market to raise funds. STFC had raised ₹584 crore through a qualified institutional placement (QIP) in January 2010.

“STFC started work on its fundraising efforts last week. The plan is to raise up to ₹2,000 crore. At present, they are working on a rights issue, but a QIP offering is also on the table. The board is to meet in the next couple of weeks, where they will take the final call,” said one of the person cited above.

Investment bank ICICI Securities is advising the lender on its fundraising efforts, he added. More banks will be appointed as the plan firms up.

STFC did not respond to an email query. ICICI Securities chose not to comment.

The financier plans to raise equity capital to strengthen its balance sheet as the lockdown and fall in economic activity are expected to have a significant impact on the ability of borrowers to repay loans, said the second person.

"The capital will help the lender be better prepared for contingencies, as well as give it the firepower to tap opportunities at a time when a lot of non-bank lenders are expected to go slow on disbursals."

Recently, rating agency Crisil revised its outlook for Shriram Transport to negative from stable.

The revision was based on the rating agency's belief that STFC's collections and asset quality metrics are likely to come under pressure due to the extended nationwide lockdown and challenging economic environment.

"The company largely caters to borrowers with modest credit profiles and relatively under-banked customers. The borrowers of the company are primarily individual, small road transport operators whose truck utilisation and income streams are more vulnerable to weak economic activity," Crisil said.

In this challenging environment, there is high likelihood of collection efficiency remaining low and consequently increase in delinquencies, it said, adding that the ability of STFC to quickly ramp up current collections, post moratorium, for the months of June and July will be a key indicator of potential credit losses.