 "Gagan Banga, MD & CEO of Sammaan Capital")
Following Abu Dhabi-based International Holding Company’s (IHC’s) announcement of an ~8,850 crore investment in Sammaan Capital for a little over a 41 per cent stake —which has triggered an open offer for the company — Gagan Banga, managing director and chief executive officer (MD & CEO) of Sammaan Capital spoke to Subrata Panda in a telephonic interview to outline what the investment means for the company, and how it plans to leverage this capital to expand its business. Edited excerpts:
What does IHC bring to the table for Sammaan Capital?
Their size, heft, and the amount of capital they manage. Therefore, they bring solidity to the equity cap table. What a billion dollars also means is that they are making a significant commitment — this is not a small side business for them. And most importantly, they are taking over as the promoters of the company. They are basically taking responsibility for the debt, which, from a capital structure point of view, is one of the biggest contributions they will bring to the future growth of the company.
The other thing with IHC, which gels very well in a finance business, is that while private equity pool of capital is great, by their very structure, they also have to think about their investment from a finite time point of view. But when a holding company like IHC is coming in, they are thinking of this as their financial services foray. Therefore, they are thinking of perpetuity, which is the right way of building a finance business.
The third big advantage is that, within the IHC ecosystem, they have significant investments in companies that are at the cutting edge of technology. This will give us access to all the technological advancements their companies are making.
Would it be fair to say IHC's investment is for perpetuity?
Yes, it is for perpetuity. This is the way they will approach financial services in India, especially balance sheet financial services. This is their foray for that. And this is how they will build their India financial services position. So, this (Sammaan Capital) in itself will become both an opco (operating company) and a holdco (holding company) over a period of time.
So, there will be more investments in other companies through Sammaan Capital by IHC?
Absolutely.
How much will IHC hold in the company after the open offer?
Aside from the open offer, they will own about 26 per cent via preferential equity, and another 15 per cent through the conversion of warrants, which will happen in three tranches over a period of 18 months. So, that’s the end structure.
If the open offer goes through, at peak, their ownership can rise to 63 per cent. I can’t comment on whether the open offer will happen or how much will come through. From my perspective, that capital does not come into the company anyway. So, from my perspective, the primary is of ~8,500 crore, and as a consequence, they will own a little over 41 per cent.
How much benefit will you get from a cost-of-funds perspective?
With this sort of capital, and the reduction in the cost of capital that it brings, you would expect 7-8 per cent return on equity (ROE) that we are generating today to automatically gravitate towards 16-18 per cent. In our best-case scenario, we expect the cost of debt capital to come down by 150 basis points (bps) over time, and if that happens, and everything else we are trying to achieve materialises, we could reach 17-18 per cent ROE.
How will the board composition shape up?
They have a right to a majority. Three of our directors are due for retirement next year, between August and November. As and when they retire, their nominees can come in. They are in no rush.
Will there be any change in management?
It's completely business as usual. They have gone on record to say that this transaction has happened due to the management. And a large part of the value that they have put on the deal is the value that they are ascribing to the management.
What will be your strategy going forward with such a large capital infusion?
So, the next 18 months is about business as usual. We will continue working towards our stated objectives of ~1 trillion assets under management (AUM) by 2026-27 (FY27) and related return ratios. After that, there will certainly be a rejig. We will be in a position to expand much more widely in our product suite beyond what we offer today. The segment will remain very focused on low- to mid-income groups. We will evaluate each of their loaning requirements critically, and whichever ones make commercial sense — aside from the products we are already offering — we will pursue.
Would you expand into owning an asset management company (AMC) or insurance business?
No. We will be focused only on the lending business. We do have a large customer base, which will become even larger. Aside from loans, whatever other financial services they require, we will provide in a partnership mode. Manufacturing other products or offering services aside from lending is not on the radar.
Would you look at a banking licence going forward?
Again, I want to focus on life between now and 2030, and deliver on the objectives we have set. The team has worked very hard over the last seven years to get to this point. I want to give them peace of mind and a free runway to do what they need to do. There is no time or scope for distraction. This is the time to focus on one thing only: sustained ROE creation.
