Ge Caps Allowed To Pick Up 90% In Srf Finance

The Foreign Investment Promotion Board has cleared GE Capitals proposal to acquire an equity stake of up to 90 per cent in the Arun Bharat Ram-promoted SRF Finance Ltd, paving the way for the first-ever acquisition of a non-banking finance company (NBFC).

However, GE Capital has agreed to limit its equity holding in SRF Finance to 85 per cent after the finance ministry decided that its proposal to buy out the companys entire stake could not be allowed. A 100 per cent takeover would have entitled GE Capital to tax benefits in the US.

GE Capital president Pramod Bhasin said: I have not seen it (the FIPB clearance) on paper and would, therefore, not like to comment on the issue. However, he confirmed that the company had agreed to limit its stake to 85 per cent in SRF Finance.

 

The company is also believed to have sought clarification from the Securities and Exchange Board of India (Sebi) on whether the acquisition would be based on the old or the new takeover code.

Sebi has reportedly taken the view that the new takeover code, which allows overseas companies to take a stake up to 100 per cent, would apply in this particular case.

The takeover initially began as a negotiated acquisition of 10,238,431 shares (55.5 per cent) held by Arun Bharat Rams SRF Ltd in SRF Finance. Subsequently, it developed into a buy-out proposal of an issued capital of 1,84,476,23 shares, at a takeover price of Rs 53.50 per share.

Around 15 per cent of the equity in SRF Finance is held by multilateral institutions like the International Finance Corporation, while the remaining equity is held by the public.

The acquisition will help GE Capital to significantly expand its presence in commercial vehicle and working capital financing, while furthering SRF Ltds strategy of divesting non-core businesses. SRF will now concentrate on its nylon tyre cord and chemicals operations.

The finance ministry had earlier shot down GE Capitals proposed takeover of SRF Finance, claiming that it violated sectoral norms relating to investments in the financial sector.

The new norms pertaining to foreign equity investments in NBFCs permit only holding companies to pick up a 100 per cent stake in NBFCs. GE Capital does not meet this requirement as it is an operating company. GE Capital Service India is a wholly-owned subsidiary of GE Capital Services, US.

The companys acquisition cost of $30 million also falls short of the $50 million investment threshold set for wholly owned subsidiaries in the financial sector.