February 11, 2021: Magma Fincorp Ltd (MFL) said the CEO of the Serum Institute of India,Adar Poonwalla, who led the company Rising Star Holdings, will be buying the controlling stake in the company.
Details of the surprise deal
In a surprise move, Adar Poonawalla controlled Rising Sun Holdings and acquired a 60 percent stake in Magma Fincorp Ltd.
As a part of the deal, Magma will get fresh capital to the tune of Rs 3,456 crore.
Magma’s stock closed 10 percent higher at Rs 84.95 per share on BSE. Its assets under management stood at Rs 15,006 crore at the end of December 2020. It has two subsidiaries – a housing finance company and the non-life insurance company.
The deal will take place via a fresh capital raise of Rs. 3,456 through a preferential allotment, Magma Fincorp said in a regulatory filing.
“Magma will allot 458 million shares to Rising Sun Holdings, and 35 million shares to Sanjay Chamaria and Mayank Poddar. The preferential allotment represents 64.68 percent of MFL’s enhanced equity share capital post the issue. Rising Sun Holding would hold 60.0% stake in the entity post-issuance and the existing promoter group stake would get reduced to 13.3% post-issuance,” the company said.
According to the official statement, the deal is subject to shareholders’ and other regulatory approvals and represents 64.68% of MFL’s enhanced equity share capital post the issue.
Based on current shareholding, Rising Sun Holding would hold a 60.0% stake in the entity post-issuance and the existing promoter group stake would get reduced to 13.3% post issuance.
Predicted outcome of the acquisition
The net worth of Magma Fincorp shall increase to over Rs 6,300 crore post the issuance, Magma and Poonawalla Finance said in a joint statement.
Poonawalla Finance is an existing finance company owned by the Poonawalla family, which owns and controls vaccine maker Serum Institute.
Following the preferential issue, Rising Sun Holdings would be classified as the promoter of MFL. MFL and its subsidiaries shall be renamed and rebranded under the brand name Poonawalla Finance, subject to regulatory approvals.
Subsequent to the completion of the preferential allotment, the existing financial services business of Poonawalla Finance is proposed to be consolidated into MFL subject to compliance with extant regulations.
Poonawalla speaks up on Magma Fincorp deal
“I am excited at this opportunity to infuse majority capital for controlling stake of MFL. I see unlimited potential in India in the financial space as our economy is poised to grow in double digits and this ties in with our group philosophy of serving the needs and dreams of the nation, and financial service plays an important role in supporting and fuelling the growth of our country. This transaction is subject to statutory and regulatory approvals,” said Poonawalla, Director, Rising Sun Holdings.
What Magma Fincorp has to say about this deal?
Sanjay Chamria, Vice-Chairman and Managing Director said Magma has 300 branches with 10,000 employees spread over 22 states.
With the proposed capital infusion, the company expects to improve in productivity and operating matrix. Existing promoters will infuse Rs. 250 crore and Poonawalla’s will bring in about Rs. 3,200 crore as capital.
“This would help in propelling the company into a higher growth trajectory, benefiting from the potentially lower cost of funds, improved credit rating and with additional leveraging of the huge distribution network, will eventually improve the overall RoE. We are proud to be associated with one of the country’s finest & reputed business groups, and hope to together take the Company to new heights,” Sanjay Chamria said.
According to the statement, both parties believe that the transaction would be in the best interests of all the stakeholders and that post transaction, Magma Fincorp would be uniquely placed to leverage the vast opportunities in the lending space with an expected reduction in borrowing cost.
Strong corporate backing and substantial fund infusion are likely to have a positive effect on the credit rating of the company as well. This infusion would also enable Magma to invest in its housing finance subsidiary and general insurance joint venture, it said.
On Wednesday, Magma Fincorp’s scrip on BSE closed 9.97% higher at Rs. 84.95 apiece.
Post transaction, Magma Fincorp would be able to leverage the vast opportunities in the lending space with the expected reduction in borrowing cost.
Strong corporate backing and substantial fund infusion are likely to have a positive effect on the credit rating of the company as well.
This infusion would also enable Magma Fincorp to further invest in its Housing Finance subsidiary and General Insurance joint venture, as required.
Economic Laws Practice is acting as the tax and transaction advisor and Khaitan & Co is acting as the legal advisor. Axis Capital Limited is acting as the merchant banker to the open offer to Rising Sun Holdings.
Deloitte Touche Tohmatsu India LLP is acting as the exclusive financial advisor to Magma Fincorp, Wadia Ghandy & Co is acting as legal advisor and Vinod Kothari & Co is acting Corporate law Advisors to Magma Fincorp.