Shriram Transport sees huge cost advantage in proposed merger

Shriram Transport Finance (STFC) today said the proposed merger of its parent Shriram Group with the IDFC Group is likely to bring significant advantages for it as it sees the move lowering the cost of borrowing.
Last week, the infra lender IDFC and the Ajay Piramal Group-backed financial services major Shriram Group had agreed to exclusively discuss a merger plan over the next 90-day period.
During this period, the managements of both the groups would look to finalise details such as the swap ratio, post which they will seek the requisite approvals from various regulators overseeing the banking, insurance, and capital markets.

"STFC will have cost advantages as its borrowings charges will come down under large entity which has better ratings, which should help us going forward," STFC managing director & CEO Umesh Revankar told analysts on a concall this evening.
"We feel that even if there is a 10-15 bps advantage, it is significant given our size," he said, adding the company's loan book is over Rs 40,000 crore.
Revankar claimed his employees are "very happy" with the proposed merger plan under which it will remain a standalone entity held by IDFC, while the rest of the Shriram Group will get merged with IDFC Bank.

"We (STFC) will remain standalone and so there is no difference for our employees," he said.

Under the proposed merger, Shriram City Union Finance will merge into IDFC Bank, while other businesses under Shriram Capital, including STFC, will be aligned with IDFC.
He said the proposal will provide an opportunity to the Shriram Group to transform itself into a mass retail bank.
"The combination will bring in complimentary advantage to both the groups as IDFC has large footprints in corporate segment and Shriram Group in retail segment," Revankar said.
The Shriram Group has 10 million customers which are a potential client base for IDFC bank.

Earlier in the day, global rating agency Fitch said the proposed merger may not impact STFC's ratings.
"Shriram Transport, that provides financing for used commercial vehicles, is unlikely to be affected based on the proposed group structure," the agency said in a note.
But it was quick to add that the structure itself may encounter stiff regulatory challenge.
In the event the merger proceeds, Fitch said it would review the final terms of the merger and assess the impact on the rating based on the final structure, the role of Shriram Transport within the larger IDFC Group and any potential synergies that Shriram Transport may derive from the amalgamation.