Chennai-based Shriram Group has signed a strategic deal with Sanlam Group of South Africa.
Though the two groups had already insurance joint ventures in life and non-life segments, the latest deal is set to expand and deepen the ties between them. The deal is also expected to herald Sanlam into the Indian financial services business (other than insurance) in a big way.
Rs.2000-cr investment
The deal will involve in all an investment of Rs.2,000 crore (including stakes in insurance ventures) by Sanlam into Shriram Capital, which is the holding company of the Shriram Group for its financial services business.
In an interaction with this correspondent, G. S. Sundararajan, Managing Director of Shriram Capital, said the deal would result in Sanlam holding 26 per cent equity in Shriram Capital on the expanded capital base.
Shriram Capital has a paid-up capital of Rs.112 crore and net worth of around Rs. 800 crore. Originally, the entire equity of Shriram Capital was held by Shriram Ownership Trust. A few months ago, private equity firm TPG picked up 15 per cent equity by investing close to Rs.700 crore.
Mr. Sundararajan said the Shriram Group had been urging Sanlam to come in as a strategic investor to drive “our growth in the financial services sphere”. Shriram, he said, was keen on a long-term association with Sanlam. “They weren't quite sure if they would want to venture outside the insurance space,” he said. After much discussion, however, the board of Sanlam gave its approval a couple of months ago to get into the Indian financial services space in a big way, he said.
Sanlam would get 26 per cent equity in Shriram Capital which would include “up-streaming of life and general insurance shares”. Sanlam would be given proportionate shares of Shriram Capital for its 26 per cent stake each in life and general insurance joint ventures.
Thus, the total investment of about Rs. 2,000 crore by Sanlam in Shriram Capital would comprise two parts — upstreaming of insurance shares and cash component — he said.
As a consequence, the insurance firms would cease to be joint ventures and Shriram Capital would hold 100 per cent shares in them. Sanlam, however, would have indirect 26 per cent holding in the insurance ventures by virtue of its 26 per cent stake in Shriram Capital, he clarified.
Mr. Sundararajan said the deal would take six to nine months to be sealed as it required approvals from regulators such as IRDA (Insurance Regulatory and Development Authority of India), Securities and Exchange Board of India (SEBI) and the Reserve Bank of India (RBI).
“This is a huge step forward for them (Sanlam),” he said. The deal was a confidence vote on Shriram and an affirmation of Sanlam's keen interest in India.
Following this deal, the holding of TPG would go down to around 11 per cent, he said.
Sanlam and Shriram would be together should there be an IPO (initial public offer) for Shriram Capital in future, Mr. Sundararajan said.
