ChrysCap to take 20% in 3 Shriram group firms

ChrysCapital III, LLC, Mauritius, will pick up 20.6 per cent stake each in truck financing firms Shriram Investments Ltd, Shriram Transport Finance Company Ltd and Shriram Overseas Finance Ltd for about Rs 100 crore (Rs 1 billion) through a preferential issue.

The total investment could go up by an additional Rs 20 crore (Rs 20 million) if ChrysCapital exercises its option to subscribe to an additional 4.34 per cent of equity in SIL and STFC. The decision to issue preferential shares was discussed today by the board of directors of the Shriram group.

This would be the Mauritius-based ChrysCapital's largest investment in India. The preferential offer is to be followed by an open offer to the shareholders as the three companies are listed entities.

Shriram group chairman, R Thyagarajan said the three companies would also be merged in the next two years. He estimated the business of the combined entity at the time of merger would be about Rs 10,000 crore (Rs 100 billion).

ChrysCapital will get two board level positions in all three companies. Following the preferential issuance, the promoters' holding will fall to about 26 per cent from around 30 per cent, said Parag Sharma, vice president of Shriram Transport.

Citicorp, another stakeholder in the company, will see its stake declining to 9 per cent. The stakes of UTI Bank, Reliance Capital and FMO (a Netherlands-based development financial institution) will dip from 5 per cent to 3.5 per cent, Sharma added.

Ashish Dhawan, senior managing director, ChrysCapital, said that about 20 per cent of $450 million fund is invested in the financial sector. Dhawan said the fund typically looked at an investment horizon of 4-7 years.

The preferential offer to ChrysCapital would be made at the following prices: Rs 35 a share (a premium of Rs 25) in the case of Shriram Investments and Shriram Transport Finance, and Rs 21 a share (Rs 11 premium) in case of Shriram Overseas.

Among the other significant investors in the Shriram group are Citigroup and UTI Bank, which have total exposure of Rs 1,000 crore (Rs 10 billion) and Rs 600 crore (Rs 6 billion), respectively.

The preferential issue is expected to be completed by April 2005. An extra-ordinary general meeting of these companies will be convened on February 3 to consider the issue of shares to ChrysCapital.

"ChrysCapital's funds will help augment the Tier I capital of the company. The funds will be deployed in the profitable used-truck financing market where Shriram is a market leader," Thyagarajan said. He estimated the used truck market at over Rs 20,000 crore (Rs 200 billion).