World Bank investment arm to channel $200 mn into Shriram Transport Finance

The proceeds will be used for lending to small road transport operators and MSMEs in rural and semi-urban areas in low-income states

Shriram Transport Finance Company Ltd is raising $200 million (around Rs 1,420 crore) from International Finance Corporation and other investors through a securitisation structure

IFC, the World Bank's private-sector investment arm, said the structure would help mitigate foreign exchange risks and attract patient capital from pension funds, insurance firms, and foreign institutional investors. Half of the total amount will come from IFC’s own account and the rest will be mobilised from like-minded partners. The first tranche of $82 million was disbursed on Thursday. Half of which is from IFC’s own account.

The proceeds will help Shriram Transport meet its funding requirements and allow it to continue expanding its reach to micro, small and medium enterprises, IFC said.

Hemalata Mahalingam, Manager, Financial Institutions Group, IFC South Asia said that the unique securitisation structure would channel patient capital from diverse financial sources into the NBFC segment and support the development of India’s debt capital markets.

Umesh Revankar, MD and CEO, Shriram Transport Finance added that the funds raised would be used to help the small commercial vehicle operators and MSMEs in rural and semi urban markets. 

There is a huge growth opportunity in smaller towns and the company will unleash the potential of these geographies.

The transaction comes at a time when NBFCs in India have been feeling a liquidity crunch since September last year due to the Infrastructure Leasing & Financial Services Ltd (IL&FS) crisis.

IFC believes that NBFCs are an important source of credit for road transport operators and MSMEs, for whom the credit gap is pegged at $397 billion. IFC has been supporting asset-financing NBFCs and was an early investor in this segment. 

IFC backed Shriram Transport earlier as well. The World Bank arm had invested $150 million in Shriram Transport in the form of senior debt in 2016. In 2017, IFC invested in the company’s first offshore, rupee-denominated bond issuance, also known as masala bonds, to enable diversification of its funding sources. 

The development comes at a time when Shriram Group's flagship company Shriram Transport is facing pressure in the public market where the company's stock price dropped by 8.8 per cent after Piramal's exit. After the exit, on June 14, company's stock price dropped by 8.8 per cent to Rs 986.1 (on July 25, 2019) from Rs 1,081.6. Company's market capitalisation dropped by Rs 2,165.6 crore to Rs 22,372.6 crore from Rs 24,538.2 crore.

Revankar expects the upcoming festival season, pre-buy demand for BS-IV vehicles and other factors will boost the demand for new and used commercial vehicles and help the company.