The Chennai-based Shriram Capital
Bank are set to begin 90 days of exclusive negotiations next week for an all-stock merger
that could create a Rs 60,000-crore financial powerhouse, with both groups filling gaps in each other’s businesses.
According to an investment banking source, the lending business of the Shriram group, which includes listed companies
such as Shriram Transport Finance
and Shriram City Union Finance, could be merged with IDFC
Bank, while the unlisted life and general insurance companies
could be merged with IDFC.
Post-merger, both Shriram Capital, the holding company of the group, and the BSE-listed IDFC
will emerge as holding companies
of the new entity.
A board meeting of Shriram Capital
has been called on Saturday to discuss the merger. IDFC
Bank and IDFC
did not inform the stock exchanges of any board meetings till Thursday evening.
If the merger
fructifies, it will provide liquidity to Piramal Enterprises’ 2014 investment of Rs 2,014 crore for a 20 per cent stake in the unlisted Shriram Capital.
A year later, the Piramal group invested another Rs 790 crore in Shriram City Union, a consumer and gold finance company, for a 10 per cent stake.
In 2015, Ajay Piramal finally took over as chairman of Shriram Capital.
Rajesh Laddha, former chief financial officer of Piramal Enterprises, was appointed managing director and chief executive officer of the company last month.
After merger, Piramal Enterprises would not be able to own more than a 10 per cent stake in the merged entity under the Reserve Bank of India’s norms on corporates owning stakes in banks, said a banking source.
with Shriram Capital
will help the IDFC
group to meet its financial inclusion targets and increase its retail portfolio. IDFC
Bank’s loan portfolio is made up predominantly of corporate and infrastructure advances. With problems in the infrastructure sector and tepid demand for corporate credit, the bank has been aggressively looking at the retail and SME (small and medium enterprises) segments to expand business.
Bank statement said the bank kept evaluating opportunities and if anything concrete fructified it would inform the stock exchanges. “At this point, there is nothing that can be disclosed,” it said in a statement to the stock exchanges. “Under the circumstances, we are unable to confirm or deny the news
reports. Meanwhile, we cannot comment on market speculations,” it added. A similar statement was issued by the Shriram group’s listed companies.
The stock prices of all the companies
reacted positively following reports of the merger
talk on Thursday.
Piramal Enterprises’ shares were up 4.5 per cent to Rs 2,938 a share and its market capitalisation crossed Rs 50,000 crore.
The stock price of IDFC, the holding company of IDFC
Bank, was flat at Rs 60 a share, while IDFC
Bank’s shares were up 1.7 per cent.
Taking into account today’s market capitalisation, the merger
will create a Rs 60,000 crore plus entity. Shriram Capital
and its operating entities have a customer base of over 12 million, more than 60,000 employees in 3,000 offices, net profit of Rs 2,200 crore and assets under management in excess of Rs 90,000 crore. Its chit fund business is housed directly under the Shriram Ownership Trust and is not expected to be affected by the merger.