Chennai: Overseas investment companies are flocking to the Shriram group. The latest is the Newbridge Capital that manages over $2 billion. The company has taken 49 per cent stake at a sizeable premium in Shriram Holdings (Madras) Private Limited.

Shriram Holdings is the holding company for the group's three truck financing outfits viz Shriram Transport Finance Company Limited (STFC), Shriram Investment Company Limited (SIL) and Shriram Overseas Finance Limited (SOFL). Interestingly Shriram Holdings is in turn a subsidiary of Shriram Financial Services Holdings Pvt Ltd.

As per the deal Newbridge would invest $100 million (Rs448 crore) in the three truck financing companies and also acquire the 49 per cent stake in Shriram Holdings.

According to R Sridhar, managing director, STFC, "The Newbridge funds will first come to Shriram Holdings. And from there the three operating companies would get their share." In the first round of funding totaling Rs300 crore, STFC would get Rs140 crore, SIL Rs130 crore and SOFL Rs30 crore. The additional funds would enable the group to lend upto Rs7,500 crore.

The three financing companies will also consider a preferential convertible warrant issue to Shriram Holdings. If the later exercises the option then the additional funds infusion in the three companies would be to the tune of Rs175 crore.

The preferential issue would invite open offer provisions of the take-over regulations and Shriram Holdings will acquire 20 per cent of the public holding in the operating companies.

What is interesting is the timing as well as the deal structure. The Shriram group has announced its decision to merge the three truck financing companies. Already the process of merging SIL with STFC has commenced. A year later SOFL will be merged with STFC. By then STFC will be the largest non banking finance company in the country.

In January 2005, ChrysCapital III LLC, Mauritius through is subsidiary Uno Investments had invested around Rs100 crore in STFC, SIL and SOFL for 20.60 per cent stake. The other investors in the three Shriram group's truck financing companies are FMO- a Development Financial Institution, Netherlands, Reliance Capital, UTI Bank and Citicorp Finance (India) Ltd.

Though Newbridge's representatives will be on Shriram Holding's board, Thyagarajan rules out any change in the operating companies board.

To the question whether the group is planning to exit the financing business-what with Newbridge becoming a major partner in the holding company and the merger of operating companies- Thyagarajan says, "As of now there is no plan to exit the truck financing business. There is no moksha in business. Further the group is not averse to holding minority stake if need be."

Post merger, Shriram Holdings and associates will control around 70 per cent of STFC and 30 per cent will be with the public.

The current holdings of Indian promoter group in the three companies are:

STFC 11.69 per cent
SIL 11.67 per cent
SOFL 21.90 per cent