IFC to invest $75 million in Cholamandalam Investment

Proceeds to be used to extend loans to small road transport operators

The International Finance Corporation (IFC) has proposed to invest around $75 million in first rupee-denominated offshore bond (Masala bond) of Cholamandalam Investment and Finance Company Limited (CIFCL), part of the Chennai-based Murugappa Group.

IFC would play a catalytic anchor role in the proposed $125-200-million bond placement by the company. Its support should enable CIFCL to launch its first off-shore local currency bond for international investors and open the platform to more such solid, reputable but below international investment grade issuers to access the market, said the World Bank's investment arm.

IFC's catalytic support will help attract additional funds from other private sector and foreign investors through the Masala bond route.

The Masala bond issuance with IFC's support will open an entirely new funding source (foreign investors) for the company, which, it can tap into to further its diversification plans, according to IFC's disclosure.

The proceeds of this investment will be used to extend loans to small road transport operators, most of whom are first-time borrowers or driver-turned-owners and SMEs (small and medium enterprises) in LIS.

Chola was incorporated and promoted as the financial services arm of the Murugappa Group. Founded in 1900, the Group is a prominent business conglomerate with 28 firms including 11 listed companies and a workforce of 40,000 employees. 

The promoters hold 53.1 per cent of the total shares in Chola. Other key shareholders include IFC, Oppenheimer Developing Markets Funds, Cartica Capital Limited along with mutual funds and insurance companies.

CIFCL is a leading non-banking finance company headquartered in Chennai and is primarily focused in the rural and semi-urban space in India with approximately 90 per cent of its Rs 37,500-crore portfolio being present across Tier III and Tier IV towns, emphasising its strong reach and presence in the under-served and frontier markets of India. 

The core business segments include vehicle finance, home equity loans, corporate finance, stock broking and distribution of financial products.  

The NBFC is expected to increase its customer base by 500,000 customers over the next 5 years; as a result, it is estimated that 1 million jobs would be created in this period.

Currently, Chola has around 50% of its pan-India footprint in low-income states. It is expected that more than 60 per cent of CIFCL's portfolio will be in low-income states going forward.