Adar Poonawalla-backed firm takes over Magma Fincorp in Rs 3,456 cr deal

The Poonawalla Group is acquiring a controlling 60 per cent stake in non-banking finance firm Magma Fincorp by subscribing to a Rs 3,456-crore preferential issue, the Pune-based company, better known for the Serum Institute, said on Wednesday.

The company, which has a fledgeling NBFC arm called Poonawalla Finance which lends mostly to professionals, said the acquisition will be done through a group company called Rising Sun Holdings.

The transaction, subject to shareholders and regulatory nods and through a preferential issue of equity shares of Magma Fincorp worth Rs 3,456 crore, will result in Rising Sun taking over the company with 60 per cent stake and an open offer under applicable Sebi guidelines, the statement said.

As part of the transaction, Magma Fincorp proposes to allot 45.80 crore or 60 per cent shares to Rising Sun, and 3.57 crore shares to Sajnay Charmia and Mayank Poddar.

The preferential allotment represents 64.68 per cent of Magma's enhanced equity share capital post-issue and based on the current shareholding, Rising Sun will hold 60 per cent stake and the existing promoter group's stake will come down to 13.3 per cent.

The equity infusion will result in the networth of Magma Fincorp rising to over Rs 6,300 crore.

Post-preferential issue, Rising Sun Holdings will become the promoters of Magma Fincorp and its subsidiaries, which all will be renamed as Poonawalla Finance.

The deal will make Adar Poonawalla the chairman of the board, and Abhay Bhutada, presently managing director and chief executive of Poonawalla Finance, will be the managing director of the merged entity.

Sanjay Chamria will continue as the executive vice-chairman of the merged entity which will be strengthened through with a new chief executive offer and also a chief operating officer, the statement said.

This equity capital infusion will enable Magma to further invest in its housing finance subsidiary and general insurance joint venture.

Adar Poonawalla, the director of Rising Sun, said that he sees unlimited potential in the financial services space in the country and the proposed deal only helping widen the same.

Sanjay Chamria, the vice-chairman and managing director of Magma said this substantial equity infusion will help in propelling Magma into a higher growth trajectory, benefiting from the potential lower cost of funds, improved credit ratings and eventually improve the overall return on investment.

The city-based Magma Fincorp began operations nearly three decades ago as a non-deposit taking NBFC offering a bouquet of products including commercial finance, agri finance, SME finance, mortgage finance and general insurance apart form affordable housing.

Magma is present across 21 states with 298 branches serving over 5 million customers and manages a loan book of Rs 15,000 crore.

In the run-up to the announcement which was made well after the market hours, the Magma counter rallied almost 10 per cent to close at Rs 84.95 per cent on the BSE which ended almost flat after six days of the frenetic rally since the budget.

Magma earlier this week had reported net sales of Rs 454.66 crore, down over 12 per cent for the December quarter and a paltry Rs 1 crore net income down 80.5 per cent from Rs 5.40 crore in December 2019.

Magma Fincorp shares have given over 100 per cent returns over the last six months.

Axis Capital and Deloitte Touche Tohmatsu are the merchant bankers to the open offer, while Economic Laws Practice, Khaitan & Co, Wadia Ghandy & Co and Vinod Kothari & Co are the legal advisors for the deal.