Commercial vehicle financier Shriram Transport Finance Co Ltd (STFC), the flagship entity of Chennai-headquartered Shriram Group, has engaged eight merchant bankers to launch a Rs 1,500 crore rights issue and prepare for any COVID-19 related uncertainties, sources in the know told Moneycontrol.
This is the firm’s first attempt in a decade to raise funds via equity markets. Ajay Piramal-led Piramal Group owns 20 percent stake in Shriram Capital, which in turn holds around 26 percent in STFC.
“The kick-off for the proposed rights issue took place on June 22 and the firm has shortlisted JP Morgan, ICICI Securities, HSBC, BNP Paribas, Citi, Credit Suisse, SBI Capital and Axis Capital as merchant bankers,” one of the persons cited above said.
The plan is to launch the rights issue in the next few weeks and close the deal before July end, he added. A second person confirmed the names of the shortlisted merchant bankers and the launch timeline.
Sales in the commercial vehicle segment have plummeted post the outbreak of COVID -19 with medium to heavy commercial vehicles taking it on the chin. For instance, Ashok Leyland reported an unprecedented 90 percent year-on-year drop in domestic sales for May 2020.
“Considering the fragile business environment, STFC is looking to improve its capital adequacy ratio and debt-to-equity ratio and boost its lending business via this rights issue, “ said the first of the two persons.
“They want to create a capital buffer and believe this is the right time to raise capital, get a competitive edge and move ahead of smaller rivals,” added the second person.
Both the persons spoke to Moneycontrol on condition of anonymity.
In response to an email query, ICICI Securities, HSBC, Citi and Credit Suisse declined to comment. Response from BNP Paribas, SBI Capital, Axis Capital & JP Morgan is awaited.
An email response from STFC has been sought and the article will be updated once the response is in.
STFC had last tapped the equity markets in January 2010, when it raised Rs 584 crore via a qualified institutional placement (QIP). Peer Mahindra & Mahindra Finance is also looking to raise up to
Rs 3500 crore via the rights issue route.
Battling the COVID-19 environment
STFC reported a 70 percent dip in its consolidated net profit at Rs 223.38 crore for the March quarter as it provided a substantial amount for provisions. The non-banking financial company had reported a net profit of Rs 746.04 crore during the corresponding quarter a year ago. The promoters hold 26.25 percent stake in STFC and the company counts marquee global names like Fidelity Group, T Rowe Price, Invesco and South Africa’s Sanlam Life Insurance as its investors. Its products include commercial vehicle loans, life insurance, business loans, working capital loans and deposits.
"The company has used relevant indicators of moratorium, considering various measures taken by the government and other authorities along with an estimation of potential stress on probability of defaults and loss given defaults due to COVID-19 situation," it said.
Based on such assessment, the company has made additional expected credit loss provision of Rs 909.64 crore on account of COVID-19 impact in the financial statement, it added.
Brokerages believe many non-banks will seek fresh equity capital to pre-empt any worsening due to COVID-19. They estimate around $3.5bn-4.5bn of equity raising from this segment. The reasons include risk mitigation, cash conservation, confidence or growth capital and opportunity capital.