Japan’s MUFG will acquire a 20% stake in Shriram Finance Ltd (SFL) for $4.4 billion, the Indian non-bank lender said on Friday, marking the largest cross-border investment in India’s financial sector.
The deal represents MUFG‘s largest investment in India to date, surpassing existing commitments of $1.7 billion in a sector that has struck deals worth nearly $15 billion so far this year, according to Dealogic data, more than double the $6.5 billion done in 2024.
The deal comes close on the heels of Emirates NBD Bank’s $3 billion investment for a 60% stake in Indian private lender RBL Bank in November, which was then the largest investment in the sector by a foreign bank.
For years, Japan’s biggest banks have sought out overseas targets in the face of a shrinking domestic market and rock-bottom interest rates, with India becoming a popular destination due to its fast-growing economy. Rival Sumitomo Mitsui Banking Corporation, a unit of Sumitomo Mitsui Financial Group, bought a 24.2% stake in Indian lender Yes Bank, starting with a 20% stake for $1.6 billion in May.
Shriram Finance, owned 24.9% by the Shriram Group, stated that the transaction is subject to regulatory approval.
The SFL board has also approved granting MUFG certain minority protection rights, including the right to nominate up to two non-independent directors on its board and pre-emptive rights to maintain proportional shareholding. These rights will lapse if MUFG‘s stake falls below 10% on a fully diluted basis, the company added.
MUFG will also have to pay a one-time non-compete and non-solicit fee of $200 million to SFL’s major shareholder, Shriram Ownership Trust, subject to the non-bank lender’s shareholders’ approval.
Shriram Finance said the deal would improve its capital adequacy, bolster its balance sheet, and offer long-term growth capital. It will also aid in accessing low-cost liabilities and strengthening credit ratings, the non-bank lender noted.
MUFG‘S INDIA PLANS
“With this investment, we hope to expand our activities in India to SMEs and individuals, adding to our core corporate banking base,” said Masashige Nakazono, executive officer at MUFG Bank and head of the global commercial banking planning division. “We aim to secure access to domestic demand in India that we think will drive overall growth,” Nakazono added.
Shriram Finance is one of India’s biggest retail non-banking financial entities, offering credit solutions for commercial and passenger vehicles for SMEs and individuals. Its assets under management stood at 2.8 trillion rupees, or $31 billion, as of the end of September.
The deal builds on MUFG‘s already existing operations in India over the last 130 years. The group invested $565 million into India’s digital lender DMI Finance last year, making it the second largest shareholder with a 20% stake in the company.
KPMG India, J.P. Morgan were the financial advisors. AZB & Partners, Nishimura & Asahi and Wadia Ghandy & Co. acted as legal advisers for the deal.
Shares of Shriram Finance rose as much as 3.4% to a record 898.85 rupees following the news. Since talks of the MUFG deal were first reported in early October, the non-bank lender’s shares have jumped about 46%.
SHRIRAM CAPITAL TO BE DEMERGED?
Shriram Finance also said that Shriram Capital, the holding company, is looking to restructure, to exclusively hold its lending business under one arm.
Besides the non-bank lender, Shriram Capital holds other businesses like insurance, mutual fund, wealth advisory and retail stock broking.
The restructuring is only at a preliminary and exploratory stage. No final decision, commitment, or approval has been taken by the board of Shriram Capital, the lender said in its statement.
“This restructuring has been proposed to shield MUFG‘s investment from the other businesses, especially insurance,” said a banker aware of the matter on condition of anonymity.
Reuters
