Shriram Group flirts with restructuring again to give investors exit options

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A major effort is under way to reorganise the Shriram Group, a household name in Tamil Nadu that became popular with its chit fund business and is now also widely known for truck financing and consumer lending.
A restructuring appears inevitable in order to give investors in the group’s unlisted holding company an exit option.

Founder R Thyagarajan confirmed that there was a move to reorganise the group and there was some convergence on the way forward. All stakeholders were seized of the issue and any decision would be in sync with regulatory requirements, he said.

Started in 1974 as a chit fund business, the Chennai-based group has emerged as a financial and real estate conglomerate. In the course of its growth, it allowed the entry of investors, who now don’t have flexible options to exit an unlisted holding company with listed subsidiaries.
Shriram Capital is the holding company of the group that includes Shriram Transport Finance Company, which finances the purchase of second-hand trucks, and Shriram City Union Finance, which lends funds to small businesses and two-wheeler buyers. Both companies are listed on the stock exchanges. Other subsidiary companies include those engaged in insurance and property.

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As the group expanded, it opened up to investors. Billionaire Ajay Piramal acquired a 20 percent stake in Shriram Capital for ₹2,014 crore in 2014. TPG Capital holds 9.4 percent and South Africa-based Sanlam Group 26 percent.
Shriram Ownership Trust and Shriwell Trust hold 30.7 percent and 13.4 percent, respectively, in Shriram Capital. The two trusts represent the original owners of the Shriram Group. Almost 140 people are said to be part of the founding team of the group.

Piramal Enterprises had an almost 10 percent stake in Shriram Transport, which it acquired in 2013 and sold in 2019, and it still owns 10 percent in Shriram City.

At the end of June 2021, the promoters held a 25.1 percent stake in Shriram Transport and 34.63 percent in Shriram City. The promoters now face the tricky question of how to give investors an opportunity to exit and cash out.
Finding the right buyers may be difficult. Investing in an unlisted holding company that funds diverse activities may not be as attractive as buying a stake in a listed entity that runs a focussed business and offers the flexibility to exit.

Two options

According to a person aware of the developments, this predicament forced the group to consider re-jigging the organisation in order to provide an exit window for Piramal, TPG and Sanlam.

Discussions on the restructuring process are largely around two broad options – merge the two listed subsidiaries with Shriram Capital or amalgamate the two subsidiaries first and then merge Shriram Capital with the combined entity.

Thyagarajan is of the view that Shriram Transport and Shriram City should be merged first and Shriram Capital should then be combined with it, giving the holding company’s shareholders a listed platform from which to exit.
While some are said to have pointed out that Shriram Transport and Shriram City operate in different segments, Thyagarajan reckons their business templates are essentially the same – lending and recovery. The expertise is the same in either case, according to Thyagarajan, who also highlighted the positive aspects in terms of operational efficiency, size and management bandwidth that would arise out of such a merger.

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For Piramal and other shareholders including TPG and Sanlam, the holding company discount concept is proving to be a stumbling block. The situation is similar to what the Mistry group faces in trying to exit Tata Sons, the holding company of the Tata empire.

This is not the first time that the Shriram Group is evaluating merger options. In October 2017, the Shriram Group and IDFC called off their talks to merge group entities following differences over the swap ratio valuation. Apart from that, Piramal’s 20 percent stake in Shriram Capital would have to be adjusted so that it wouldn’t exceed the regulatory threshold of 5 percent in IDFC Bank.

Public following

Notwithstanding the shareholding changes, the public continues to perceive the Shriram Group as a Chennai group. Founder Thyagarajan, or RT as he is fondly known, is still considered synonymous with the group, although he doesn’t own any company shares. Neither does he hold any office – he is considered a “senior sage” guiding the group.
In Tamil Nadu, the group’s chit fund business still has a huge membership among the common people and the Shriram brand continues to be an integral part of many households.

It’s unlikely that the common man in Tamil Nadu is aware of the ownership changes and challenges that the Shriram Group faces. Not surprising, then, that the management is trying to perpetuate the nativeness of brand Shriram.