In a surprise move, Adar Poonawalla controlled Rising Sun Holdings, will acquire 60 per cent stake in Magma Fincorp Ltd. As a part of deal, Magma will get fresh capital to the tune of Rs 3,456 crore.
After infusion of capital through the preferential issue, Magma Fincorp and its subsidiaries shall be renamed and rebranded under the brand name “Poonawalla Finance”.
Magma stock closed 10 per cent higher at Rs 84.95 per share on BSE. Its assets under management stood at Rs 15,006 crore at end of December 2020. It has two subsidiaries – a housing finance company and non-life insurance company.
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 per cent 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 Net Worth of Magma Fincorp shall increase to over Rs. 6,300 crores post the issuance, Magma and Poonawalla Finance said in a joint statement. Poonawalla is a existing finance company owned by Poonawalla family which owns and controls vaccine maker Serum Institute.
Sanjay Chamria, Vice-Chairman and Managing Director said Magma has 300 branches with 10,000 employees spread over 22 states in the states. With the proposed capital infusion, the company expects to improvement 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.
Subsequent to the completion of the preferential allotment, the existing financial services business of Poonawalla Finance, are is proposed to be consolidated into Magma Fincorp subject to compliance with extant regulations.
Adar Poonawalla will become the Chairman of the Board of Directors and Abhay Bhutada, will become Managing Director. Sanjay Chamria would continue as the Executive Vice Chairman of the Board.
The management team will be further strengthened through the appointment of a professional CEO & COO from amongst the best in the industry, with substantial experience of running large financial services’ businesses, they said.,
The acquisition of a controlling stake along with huge capital infusion is expected to have a positive impact on the business operations, including for customers, employees, lenders and other stakeholders.
Post transaction, the Magma Fincorp would be able to leverage the vast opportunities in the lending space with expected reduction in borrowing cost.
Strong corporate backing and substantial fund infusion is 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.