IDFC in merger talks with Shriram Capital
FINANCIAL GIANT Details of share swap deal to be worked out
Shriram Capital Ltd and IDFC Ltd are in talks to merge their businesses to create a financial services behemoth with a market capitalisation of over $10 billion, three people directly aware of the talks said on condition of anonymity.
The entire lending business of Chennai-based Shriram Capital, which includes listed entities such as Shriram Transport Finance Ltd and Shriram City Union Finance, will be merged with IDFC Bank, a unit of IDFC Ltd, the three people said. The unlisted entities under Shriram Capital, which includes the life and general insurance companies, will be combined with IDFC, they said.
A spokesperson for Shriram Capital declined to comment.
An IDFC spokesperson said the company evaluates opportunities from time to time and would inform stock exchanges at the appropriate time “should anything concrete fructify”.
A formal announcement on merger talks and exclusivity can be expected in the next few weeks, maybe even days, the people said. “The two parties have just entered talks. The details of the share swap will have to be worked out,” one of the three said. “The deal still has to cross many hurdles,” a second added.
Founded in 1974 by Ramamurthy Thyagarajan, AVS Raja and T. Jayaraman, the Shriram group has 24 operating companies with more than 60,000 employees and assets under management (AUM) in excess of ₹90,000 crore. It is now controlled by billionaire Ajay Piramal. A spokesperson for the Piramal Group said the conglomerate Shriram Transport Finance Co Ltd (STFC)
Shriram City Union Finance Ltd (SCUF)
IDFC Bank Ltd IDFC Ltd
Shriram Capital owns listed entities STFC & SCUF, besides owning other unlisted companies such as Shriram Life Insurance, Shriram General Insurance and Shriram Credit Co; IDFC Ltd is the holding company which owns 37.7% stake in IDFC Bank through IDFC Financial Holding Co Ltd wouldn’t comment on “speculation”.
IDFC was founded in 1997 by a group of public and private sector financial institutions and began as a lender for infrastructure projects, later diversifying into merchant banking, asset management and private equity among others. The company went public in 2005 and in 2014 received approval from Reserve Bank of India to set up a new private sector bank — IDFC Bank.
According to the people cited above, the merger talks mark a deviation from Piramal’s earlier strategy of merging Shriram Capital with Piramal Enterprises. Piramal bought a close to 20% stake in Shriram Capital for around ₹2,000 crore in 2014.
“However, the plans to merge the two companies were found to be unfeasible owing to mismatches in valuation and market capitalisation of the two companies which would have potentially resulted in a large stake dilution in the merged entity for Piramal group,” said the first person cited above. “The potential merger of Shriram with IDFC will also pave the way for Piramal group to exit Shriram Capital at a later stage if it so wants.”
The Shriram Ownership Trust, an employee trust, holds 45% stake in Shriram Capital. The latter has, in the past, held merger talks with other banks in order to cash out, the people cited above said.
Some of the shareholders of IDFC Bank which includes Housing Development and Finance Corp Ltd are keen to exit their holding in the bank and see the merger as a way of doing that, the second person said.
A merger could give IDFC Bank an edge in the retail business by giving it access to Shriram Transport “which has a fantastic retail book,” the third person said.