Proxy advisory firms back Shriram Finance resolution for stake dilution in favour of MUFG

New Delhi, Jan 7 (PTI) Three Proxy advisory firms have supported all three proposals, including stake dilution in favour of Japan-based MUFG Bank, for the Shriram Finance EGM to be held next week.

The extraordinary general meeting has been called on January 14 to secure a nod for fund infusion of Rs 39,618 crore or USD 4.4 billion (about Rs 39,600 crore) from MUFG Bank by diluting 20 per cent stake through preferential issue shares.

Last month, Japan's Mitsubishi UFJ Financial Group Inc (MUFG) announced its plan to acquire a 20 per cent minority stake in non-bank lender Shriram Finance for Rs 39,618 crore (around USD 4.4 billion), marking the largest cross-border investment in India's financial sector to date.

The first two resolutions are the preferential allotment of shares of 20 per cent shareholding to MUFG Bank and the grant of special rights to MUFG Bank. These are special resolutions requiring 75 per cent of votes cast.

The third resolution is the USD 200 million non-compete fee being paid by MUFG Bank to the promoter entity, Shriram Ownership Trust (SOT). This resolution is an ordinary resolution with promoters abstaining from voting.

ISS, in its report, said there were no known issues surrounding the proposal for the USD 200 million paid to SOT, and it will only be paid upon completion of the preferential issue of equity shares to the investor, in accordance with the terms of the Investment Agreement.

It also pointed out that the non-compete fee is being paid for a genuine restraint applied to promoters to enter into any competing business, and the agreement provides for the scope of the application and duration.

The promoters are directly being paid by MUFG Bank, and hence, concerns of any value leakage are mitigated, it said.

On the concern side, ISS said the dilution to the existing shareholders is deemed high.

Another advisory firm, InGovern, has also recommended investors to support preferential issuance given alignment with capital needs, fair pricing, strong investor credentials, and robust oversight.

It also noted that the fee is not paid by the company and is paid by MUFG Bank directly to SOT and is proportionate to the investment size, and protects the core business and brand of Shriram Finance from group conflicts, with clear scope and sunset clauses.

As of September-end, FIIs held 49.61 per cent, and DIIs held 18.65 per cent shares, with many FIIs and DIIs being long-term investors. Promoters (Shriram group) hold 25.39 per cent, and non-institutional public investors hold 6.34 per cent.

The markets have been cheering the MUFG investment as the stock price has run up 20 per cent to Rs 1,010 per share from the Rs 840.93 per share investment price.

Meanwhile, brokerage entity Motilal Oswal Financial Services reiterated its 'Buy' rating on Shriram Finance with a target price of Rs 1,100, based on two times the March 2028 price-to-book value, despite the stock’s strong recent performance. PTI DP DP BAL BAL