Magma Fincorp hit an upper circuit of 10% at Rs 93.40 as Adar Poonawalla-controlled Rising Sun Holdings will acquire a controlling stake in the NBFC through preferential issue of equity shares.
Adar Poonawalla-controlled Rising Sun Holdings will acquire a 60% stake in the non-banking financial company (NBFC) Magma Fincorp (MFL) by subscribing to a Rs 3,456-crore preferential issue. Adar Poonawalla is the CEO of Serum Institute of India.As part of the transaction, MFL proposes to allot 45,80,00,000 shares to Rising Sun Holdings, and 3,57,14,286 shares to Sanjay Chamria and Mayank Poddar.
The preferential allotment represents 64.68% of MFL's enhanced equity share capital post the issue. Based on current shareholding, Rising Sun Holding would hold 60% stake in the entity post issuance and the existing promoter group stake would get reduced to 13.3% post issuance. The net worth of MFL shall increase to over Rs 6,300 crore post the issuance. These are subject to all requisite regulatory approvals.
Following the preferential issue, Rising Sun Holdings would be classified as "promoter" of Magma Fincorp. Magma Fincorp and its subsidiaries shall be renamed and rebranded under the brand name "Poonawalla Finance".
The deal has triggered an open offer under the Securities and Exchange Board of India (SEBI)'s takeover code to buy up to 26% stake from public shareholders. Separately, an open offer has been announced for acquiring up to 19,88,32,105 fully paid up equity shares, representing 26% of the expanded voting share capital of Magma Fincorp by Rising Sun Holdings together with Sanjay Chamria and Mayank Poddar. Assuming full acceptance in the open offer, the total consideration payable by the acquirer will be Rs 1,391.82 crore.
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Rising Sun Holdings intends to nominate Adar Poonawalla as the chairman of the board and Abhay Bhutada, presently MD & CEO of Poonawalla Finance, as MD. Sanjay Chamria would continue as the executive vice chairman of the Board. The management team will be further strengthened through the appointment of a professional CEO & COO from amongst the best in the industry, with substantial experience of running large financial services' businesses.
Post transaction, the Magma Fincorp would be uniquely placed to leverage the vast opportunities in the lending space with expected reduction in borrowing cost. Strong corporate backing and substantial fund infusion is likely to have a positive effect on the credit rating of the company as well. This infusion would also enable Magma Fincorp to further invest in its Housing Finance subsidiary and General Insurance joint venture, as required.
Commenting on the proposed transaction, Adar Poonawalla, director of Rising Sun Holdings said, "I am excited at this opportunity to infuse majority capital for controlling stake of Magma Fincorp. I see an unlimited potential in India in the financial space as our economy is poised to grow in double digits and this ties in with our Group philosophy of serving the needs and dreams of the nation, and financial service plays an important role in supporting and fuelling the growth of our country. This transaction is subject to statutory and regulatory approvals."
Commenting on the proposed transaction, Sanjay Chamria, vice chairman and MD of Magma Fincorp said, "Considering the positives in the deal by way of huge capital infusion, strong brand value and ability to attract top notch talent, the Board of the Company has rightly decided to accept an offer for a substantial equity infusion into the Company. This would help in propelling the Company into a higher growth trajectory, benefiting from potential lower cost of funds, improved credit rating and with additional leveraging of the huge distribution network, will eventually improve the overall RoE. We are proud to be associating with one of the country's finest & reputed business groups, and hope to together take the Company to new heights."
Shares of Magma Fincorp have zoomed 107% in nine trading sessions from its previous closing low of Rs 45.10 on 29 January 2021.
Magma Fincorp, a non-deposit taking non-banking finance company (NBFC), is registered with the Reserve Bank of India (RBI) as an asset finance company.
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