Shares of Magma Fincorp (MFL) were locked in upper circuit of 10 per cent at Rs 93.40 on the BSE in Thursday's intra-day trade after the company announced that Adar Poonawalla-controlled Rising Sun Holdings will acquire a 60 per cent stake in the non-banking financial company (NBFC) by subscribing to Rs 3,456-crore preferential issue. After the infusion of capital, Magma and its subsidiaries will be renamed and rebranded Poonawalla Finance.
The stock of Magma Fincorp also hit a fresh 52-week high today. In the past four trading days, it has rallied 60 per cent after the company said disbursements in December quarter (Q3FY21) grew by 45 per cent year-on-year (YoY) driven by a pick-up in used assets and affordable housing. Till 09:50 am, a combined around 2,76,000 equity shares have changed hands on the counter and there were pending buy orders for around 10 million shares on the NSE and BSE.
As part of the deal, Magma Fincorp will allot 458 million shares to Rising Sun Holdings, and 35.71 million shares to Sanjay Chamria and Mayank Poddar, Magma and Poonawalla Finance said in a joint statement on Wednesday. Poonawalla Finance is an existing finance company owned by the Poonawalla family, which owns and controls the Serum Institute of India.
The preferential allotment represents 64.68 per cent of MFL’s enhanced equity share capital after the issue. Rising Sun Holdings will hold 60 per cent in the entity post-issuance, and the existing promoter group's stake will get reduced to 13.3 per cent. The net worth of MFL will increase to over Rs 6,300 crore, the statement said. Following the preferential issue, Rising Sun Holdings would be classified as “Promoter” of Magma Fincorp.
Adar Poonawalla and Magma Fincorp clearly believe that the transaction would be in the best interests of all the stakeholders and that post-transaction, Magma Fincorp would be uniquely placed to leverage the vast opportunities in the lending space with an expected reduction in borrowing cost.
Strong corporate backing and substantial fund infusion are likely to have a positive effect on the credit rating of the company as well. This infusion would also enable Magma Fincorp to further invest in its Housing Finance subsidiary and General Insurance joint venture, as required, the company said.