Shriram group may merge two of its listed non-banking finance companies

Shriram group, the Rs 1,000-billion financial conglomerate, may consider merging two of its listed non-banking finance companies — Shriram Transport Finance Company (STFC) and Shriram City Union Finance (SCUF) — to pave the way for listing Shriram Capital, the holding company of the group’s financial businesses.
 

Talks between the group, now headed by billionaire Ajay Piramal, and IDFC Group, on a merger were called off last year after the two sides failed to agree on a swap ratio. 
 

Speaking to Business Standard, R Thyagarajan, founder, Shriram group, said a merger like IDFC-Shriram Capital was complex for Shriram group, and would be considered carefully.
 

“We may evaluate some internal merger. It is only a possibility, but we have not committed anything. There is some justification for STFC or SCUF or both to be merged with Shriram Capital, and that is only to list Shriram Capital,” he added.

“From the operational point of view, I do not see much advantage in merger,” he said. He did not elaborate on the structure of the merger or other details.

According to analysts and market experts, Shriram Capital will be merged with the new listed entity (STFC and SCUF) through a reverse merger.

While Thyagarajan stated that there was no urgency for listing Shriram Capital, TPG, a private equity investor, may look at an exit route since the fund stayed invested for long time. The fund currently holds around 8 per cent in Shriram Capital.

“Listing Shriram Capital is only one among the options. There are quite a few options that could develop,” said Thyagarajan. One among them would be roping in another long-term investor. TPG had invested $158 million in Shriram Capital in April 2010 for a 20 per cent stake, which dropped to 8 per cent.

The private equity investor exited STFC in May 2013 with 6.05x returns and SCUF in May 2015 with 4.63x returns, according to the Venture Intelligence data.
 

Shriram Ownership Trust holds around 45 per cent in Shriram Capital and the holding is valued at Rs 2-3 billion, says Thyagarajan. The other shareholders in Shriram Capital are Piramal and South African Financial Services group Sanlam.

“We would like to see our holding coming down. It may happen through some long-term pure investor coming in, or when one of the existing partners takes a higher stake. We are open to considering all of them. We do not fix a timeline for these things,” he averred.

Referring to his earlier comment that all the three partners — Shriram, Piramal, and Sanlam — would have an equal shareholding in the financial business, he said in a partnership it was good to have more or less equal stakes.

Commenting on the possibility of an external merger, like its attempt to merge with IDFC Group, he said: “There is only a 20 per cent chance for the 

IDFC-Shriram deal to go through. There were so many issues involved, primarily with the people who run the organisation.” 

There are almost 70,000 employees and about 2,000 executives. Make all of them feel comfortable with the change takes own time, he said.