Magma Fincorp rakes in Rs 439cr via PE for expansion plans

Moneycontrol Bureau

Retail asset finance company Magma Fincorp  in order to support its expansion plans raised Rs 439 crore through share sale from two US-based private equity investors. It garnered Rs 236 crore from Kohlberg Kravis Roberts & Company and Rs 203 crore from International Finance Corporation.

The non-deposit taking, non-banking finance company on Monday said that it has sold 27.75% stake or 498.54 lakh equity shares to these investors at Rs 88 per share. This compares with Rs 75.10 at the close on Monday.

"We are aiming for a 50% rise in our loan disbursements in 2011-12," Sanjay Chamria, Vice Chairman and MD, Magma Fincorp said at a press conference in Mumbai.

"This fund raising will help us to maintain a sound capital adequacy ratio (CAR) and the company's dependency on securitization would eventually come down to 20% from the current 50%. We also expect to sustain a net interest margin at 5% by focusing on high yielding products like loans for buying used vehicle and construction equipments as well as SME loans," he added.

Securitisation refers to sale of bunched up loans to a third party to mitigate credit default risks.

Earlier the company was more dependent on securitisation. But, with infusion of more capital it would be possible for them to hold more assets in the balance sheets improving the CAR and thereby reducing the dependence on securitisation.

Following the capital infusion of Rs 440 crore, Magma's CAR will rise to around 25% as against 18.8% on March 31, 2011.

As per RBI's current norms, non-deposit taking NBFCs are required to maintain a CAR of 15%. The company's current cost of borrowings is in the range of 9.3-9.4%. Its assets under management stand at Rs 10,907 crore in FY2011.

"Through PE investments, the company wants to grow faster in the next two-three years. The association with international PE investors will add more credibility to the company. Thereafter, we would think about increasing retail shareholding to support our expansions," Chamria elaborated.

However, IFC is yet to get its final board approval for its investment in Magma.
"Investors will provide long term capital that can help Magma graduate to the next level (of growth). It would become one of the biggest players in the country in the next few years" said Rajeev Suneja from Ernst & Young, advisors to the transaction. 

Shares of Magma Fincorp ended at Rs 74.95, up 8% on the Bombay Stock Exchange.