MUFG seals Rs 39,600 crore Shriram Finance deal

The MUFG Bank, Japan’s largest lender with $2.8 trillion in assets, said Friday it would subscribe to a preferential equity allotment for a 20% stock ownership in Shriram Finance with a financial commitment of Rs 39,620 crore in what would be the biggest foreign direct investment (FDI) in India’s financial services.MUFG said it entered into an investment deal with Shriram Finance (SFL) and its major shareholders, Shriram Ownership Trust and Shriram Capital, for the preferential allotment. Upon completion of the deal, subject to regulatory approvals, Shriram Finance would become an equity affiliate of both MUFG and MUFG Bank, the Japanese lender said in a statement, confirming ET’s October 1 newsbreak.MUFG’s India Playbook 126084043 SFL’s stock price has rallied more than 46% since ET’s report on October 1 – from Rs 616 at the end of September 30, to Friday’s close of Rs 902 per share. The stock climbed 4% from Thursday. In a separate statement, Shriram Finance said its board of directors in a meeting in Delhi had approved MUFG’s investment subject to shareholder approvals and regulatory clearances.“This landmark transaction underscores SFL’s status as India’s second largest retail NBFC… reinforcing confidence in India’s lending and financial services sector fundamentals and future growth potential. Strengthening SFL’s capital base and accelerating its growth trajectory,” Shriram Finance said. MUFG plans to appoint two directors to the board of Shriram Finance. MUFG has also entered into a memorandum of understanding for a strategic partnership with Shriram Finance, aiming to accelerate the growth of Shriram Finance through collaboration between the two companies. “Asia is MUFG’s second home market, and within the region, India stands out as one of the most important markets globally, (as it is) expected to become the world’s third largest economy by 2030,” the bank said. SFL said the collaboration combines its established domestic franchise and extensive distribution network with MUFG Banks’s global expertise and financial strength.Balance Sheet Boost“The fund infusion will significantly enhance SFL’s capital adequacy, strengthen its balance sheet, and provide long term growth capital. This collaboration is further expected to unlock synergies in technology, innovation, and customer engagement, driving sustainable growth,” Shriram Finance said. “It will improve access to low-cost liabilities and potentially strengthen SFL’s credit ratings while aligning governance and operational practices with global best standards.” This is MUFG’s second investment in an NBFC in India. In 2023, it invested in DMI Finance, an unlisted non-banking provider of digital financial services in India increasing its stake to 20% through multiple rounds.MUFG said that its investment in Shriram Finance is a strategic step for MUFG to establish a business foundation in India’s MSME and retail markets and capture the country’s growing domestic demand. “By providing growth capital to Shriram Finance, we will help drive expansion in segments such as new commercial vehicles and MSME, while enhancing funding capacity and profitability through improved creditworthiness,” MUFG said in a release.“By combining MUFG’s broad client network and know-how built through managing partner banks with Shriram Finance’s strong local presence and long standing customer relationships, we aim to support the development of India’s road transport infrastructure and logistics value chain, as well as contribute to advancing financial inclusion which is an important policy agenda in India,” MUFG said.