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MUMBAI: Having dipped his toe last year, Ajay Piramal is now set to take a fuller plunge into financial services. His Piramal Enterprises Ltd (PEL) will purchase a 20% stake in Shriram Capital Ltd, the financial services holding company of the Chennai-based Shriram group, for Rs 2,071 crore, said two people with direct knowledge of the development.
Piramal had purchased a 10% stake in group unit Shriram Transport Finance Co. in May 2013. The new acquisition will mean a closer engagement for billionaire Piramal with the entire gamut of services aside from truck funding -- consumer finance, insurance and asset management.
PEL will purchase fresh shares issued by Shriram Capital and Shriram Ownership Trust or SOT, which owns a 64% stake in the company. Shriram group founder R Thyagarajan, 77, who built the group from the ground up with starting capital of Rs 1 lakh in 1973, has transferred his ownership to SOT as a reward to employees.
South African financial services company Sanlam, a joint venture partner of the Shriram group in both life and general life insurance, owns a 26% stake while 10% is held by American private equity fund TPG Capital, which has been a partner of the group over the past decade in many of its financial and retail ventures. The deal is expected to be announced on Thursday.
"Piramal is seen as a long-term partner and not an investor like PE funds,'' said one of those cited above. He didn't divulge the deal's financial details as it's not yet been made public. A PEL group spokeswoman said, "No comments.'' UBS Securities Corporate Finance was the exclusive adviser to the transaction.
Piramal could eventually end up owning a third of Shriram Capital with his first right of refusal on the 10% stake held by TPG. That would put it more or less on par with Sanlam and is something that would have the founder's support.
"We would like to see equal partners running the business as against any partner with higher stake wielding greater influence," Thyagarajan had told ET on November 12 last year.
Piramal, who has been seeking to build a financial services firm after he sold his local formulations business to Abbot Laboratories for Rs 18,000 crore in 2010, had purchased the stake in Shriram Transport Financial Services, India's largest truck financier, for Rs 1,652 crore .
"By picking up a stake in Shriram Capital, the Piramal group is not only securing a presence in the financial services sector but recognising that the company will generate substantial value creation, based on its performance so far,'' said Ashwin Parekh, managing director, Ashwin Parekh Advisory Services, and former head of financial services at consultant EY. "Shriram, founded by a professional, is a four-decade-strong story and needs capital for continuous growth."
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