Sumitomo Mitsui Financial Group to acquire 74.9% stake in FICC for $ 2 bn

SMFG has plans to eventually acquire 100 per cent stake in FICC, which is a wholly-owned subsidiary of Fullerton Financial Holdings (FFH)

Japan’s Sumitomo Mitsui Financial Group (SMFG) is set to acquire a 74.9 per cent stake in Fullerton India Credit Company (FICC), a non- banking finance company that offers credit to retail as well as small businesses, for about $2 billion. The transaction is contingent upon regulatory approvals.

SMFG has plans to eventually acquire 100 per cent in FICC — a wholly-owned subsidiary of Fullerton Financial Holdings (FFH), which, in turn, is a wholly-owned entity of Singapore-based investment company Temasek Holdings. The acquisition would mark a big Asian push by SMFG towards consumer and MSME lending.

Through this investment, SMFG will gain a retail finance platform in India, which is essential for its Asia franchise, and will strive to contribute to further develop India’s financial industry as a whole, the company said in a statement on its website.

Fullerton India has a pan-India presence, with over 650 branches in different geographies of the country.

“We expect the deal to help strengthen our medium-term objective of widening our digital reach in Asia as envisaged in our three-year business plan beginning FY2020,” Jun Ohta, president & group chief executive of SMFG, said.

This deal is one more example of consolidation underway in the Indian financial sector, which has been in the throes of churn since the collapse of Infrastructure Leasing and Financial Services (IL&FS) in 2018. The Covid-19 pandemic has only made matters more challenging for the sector.

Housing finance company DHFL is being taken over by the Piramal group after receiving the approval from the bankruptcy tribunal. The Poonawalla group has acquired a majority stake in Magma Fincorp. Private equity group Carlyle and a clutch of investors have made moves to acquire a majority stake in PNB Housing Finance. Reliance Capital-owned entities (NBFC and HFC) are going through resolution.

“We intend to leverage our expertise in the Japan market as well as capabilities of our franchises across key emerging Asian markets…India is one of our focus markets where we believe in its high growth potential and want to build a deeper presence,” Ohta said.

FICC in a statement said Fullerton India Home Finance, the housing finance arm of FICC, will continue to remain a wholly-owned subsidiary of FICC post the fructification of the transaction.

In November 2020, Sumitomo Mitsui Banking Corporation (SMBC) had infused $600 million into its operations in India. It will expand its presence in the country by opening a new branch in Chennai.

According to the ICRA data, Fullerton India posted a loss of Rs 1,157 crore on a total asset base of Rs 23,782 crore in FY21 as compared to a net profit of Rs 747 crore on total assets of Rs 29,168 in FY20. The loss was primarily due to higher provisions of Rs 2,143 crore and write-offs of Rs 1,281 crore. In FY19, the lender had earned a net profit of Rs 775 crore.

In Q1FY21, FFH infused Rs 750 crore equity capital into Fullerton India as additional buffer and growth capital. In January 2021, its managing director and chief executive officer, Rajashree Nambiar, stepped down after a three-year stint to pursue outside interests. Shantanu Mitra re-joined Fullerton India Credit as its MD & CEO on April 2. Earlier, he was MD and CEO of the company in 2017.

Citigroup, Cyril Amarchand Mangaldas, Allen & Overy were financial and legal advisors to FFH whereas JP Morgan, Anderson Mori & Tomotsune were financial and legal advisors to SMFG in the current deal.

The asset quality of Fullerton India deteriorated in FY21 due to the pandemic. According to rating agency ICRA, the company’s gross non-performing assets (NPA) increased sharply to 10.17 per cent in March 2021 from 2.05 per cent in March 2020. ICRA said around 57 per cent of FICC’s loan book was unsecured, thereby making the asset quality more susceptible to economic cycles.