KKR and Blackstone Group consider $3 billion Shriram deal: Sources

Negotiations around Shriram Group have been held up in part by the market turmoil after the default of IL&FS

KKR & Co. and Blackstone Group LP are among suitors that have expressed interest in acquiring a stake in Shriram Group, the Indian finance conglomerate backed by billionaire Ajay Piramal, people with knowledge of the matter said.

The two private equity firms have each held preliminary talks in recent months about buying stakes in Chennai-based Shriram Group owned by Piramal Enterprises Ltd., TPG and an employee trust, according to the people. An investment could total about $3 billion, the people said, asking not to be identified because the information is private.

A deal would require group holding company Shriram Capital Ltd. to first finalize plans for a three-way merger with its publicly traded arms, Shriram Transport Finance Co. and Shriram City Union Finance Ltd., the people said. The private-equity suitors are interested in holding a stake in a single listed entity encompassing the group’s combined business, and they weren’t comfortable having long-term exposure to an illiquid holding company, the people said.

India’s finance industry has seen $7 billion of acquisitions this year by buyers ranging from Actis LLP to Singapore’s Temasek Holdings Pte, data compiled by Bloomberg show. US investment firm Varde Partners Inc. and Aditya Birla Capital Ltd. are planning to spend as much as $1 billion on Indian distressed assets through a new joint venture, Bloomberg News reported last month.

Market Turmoil

Negotiations around Shriram Group have been held up in part by the market turmoil after the default of Infrastructure Leasing & Financial Services Ltd. group, a lender to Indian road and bridge projects, the people said. While that failure has triggered fears of rising defaults, discussions with Shriram Group’s owners could continue in earnest after the situation stabilizes, according to the people.

KKR first started talks last year with Piramal and Shriram Group, though it hasn’t yet been able to reach any agreement on price, the people said. If the US buyout firm decides to proceed, it would team up with other investors in a consortium, according to one of the people. Blackstone was also approached a few months ago to gauge its interest in a potential deal, the people said.

Shriram Ownership Trust, set up on behalf of the group’s workers, would sell a portion of its Shriram Capital stake as part of any potential transaction to help meet its obligations to employees, one of the people said. A transaction would likely require the incoming investor to make an open offer for shares in the merged entity, the people said.

This situation is fluid, and there’s no certainty the parties will reach an agreement, the people said. Representatives for Blackstone, KKR, Piramal, Shriram Group and TPG declined to comment.

Shares of Shriram Transport Finance have fallen 23 per cent in Mumbai trading this year, giving it a market capitalization of about Rs 260 billion ($3.6 billion). They surged as much as 3 per cent before closing with a 0.1 per cent gain in Mumbai on Friday. Shriram City Union dropped 0.2 per cent valuing it at Rs 110 billion.

TPG has been an investor in Shriram Group since 2006. Piramal Enterprises bought 10 per cent of Shriram Transport Finance in 2013, before purchasing stakes the next year in Shriram Capital and Shriram City Union.