DBS exits finance JV with Murugappas

The Chennai-based group takes hold of the NBFC through TII and New Ambadi Estates.

Singapore-based financial services group DBS has decided to exit Cholamandalam DBS Finance (CDFL), its joint venture with the Murugappa Group. The Chennai-based Rs 15,907-crore Murugappa Group will buy the entire stake of 37.48 per cent in the struggling non-banking finance company (NBFC) held by DBS Bank for Rs 226.5 crore.

DBS Chief Executive Officer Piyush Gupta said the decision to exit was based on the bank’s new strategy to focus on affluent and mass-affluent retail customers in India. “We had discussions with our partners and they were keen on secured asset financing in the mass market segment. That was not in line with our strategy and, hence, we decided to part ways,” Gupta said.

With this acquisition, the holding of the Murugappa Group in CDFL will go up to 74.96 per cent. The stake is being purchased by Tube Investments of India (TII) and New Ambadi Estates Private, constituent companies of the Murugappa Group.

CDFL was traditionally involved in vehicle finance and corporate mortgage products and started offering home loans a few years back. After DBS came on board in 2005, it entered consumer finance too. However, faced with large losses on this portfolio, the NBFC decided to exit the segment in September 2008 to focus on its core business.

A Vellayan, executive chairman, the Murugappa Group, said, “The stake acquisition and investments made by the group signifies our firm intentions and focus on the NBFC business. We will grow this business aggressively, exploiting the vast opportunity and leverage our established relationships with dealers, original equipment makers, solid customer base and the group’s large presence in agri business.”

MA Alagappan, chairman, Chola DBS, said, “This consolidation is a great opportunity for the group to aggressively grow and re-establish Cholamandalam as a premier NBFC in the asset financing and wealth management space.”

Meanwhile, TII in an announcement to the Bombay Stock Exchange said it planned to invest around Rs 150 crore in Cholamandalam DBS Finance (Chola DBS) and another Rs 25 crore in company’s subsidiary in France. Incidentally, Chola DBS announced on Monday that it had got its board’s approval to raise Rs 200 crore through private placement.

Out of the total transaction of Rs 226.5 crore, TII will pay about Rs 160 crore, while New Ambadi Estates will invest the remaining amount. Consequently, CDFL will became a subsidiary of TII. In addition, New Ambadi Estates will also subscribe to 15 million fully convertible cumulative preference shares of CDFL of Rs 100 each at face value.