**India’s Largest Cross-Border Financial Deal: Shriram Finance and MUFG**
In a landmark move for India’s financial sector, Shriram Finance has announced a $4.4 billion cross-border transaction, hailed as the largest of its kind in the country. This significant deal has garnered positive feedback from major credit rating agencies, including Care Ratings, Icra, and Moody’s, positioning the non-banking financial company (NBFC) favorably for cost-effective borrowing. However, the deal has also attracted scrutiny from two leading proxy advisory firms.
**What Rating Agencies Are Saying**
Following the announcement of the deal, Care Ratings promptly upgraded Shriram Finance’s rating from ‘AA+; stable’ to ‘AAA; stable’, while also reaffirming its ‘A1+’ rating for the company’s commercial paper. Icra has placed its AA+ rated lending instruments on a positive watch, indicating that the transaction will significantly enhance Shriram Finance’s capitalization profile. This improvement is expected to provide a substantial buffer for growth and help manage asset quality volatility, given the target borrower profile. Icra noted, “This, in turn, shall strengthen its credit risk profile, leading to an improvement in its financial flexibility and earnings performance.”
Moody’s followed suit, upgrading the company’s outlook to positive from stable on January 9, while maintaining its Ba1 long-term corporate family rating. The agency highlighted that MUFG’s proposed investment would bolster Shriram’s capital base, enhance access to global expertise and funding channels, and improve funding diversity and risk management practices over time. The positive outlook reflects expectations of a strengthened business and financial profile for Shriram Finance, supported by a strategic shareholder and a significant capital increase.
Brokerage firms have also reacted positively to the news, with Jefferies, Nomura, and CLSA issuing bullish recommendations on Shriram’s stock. Nomura raised its target price by 5%, while Jefferies increased its target by 8%. CLSA has maintained an ‘outperform’ rating with a target price of ₹1,030.
**Proxy Advisors’ Concerns**
Despite the optimistic outlook from rating agencies, two prominent proxy advisors have raised concerns regarding three resolutions that Shriram Finance is seeking shareholder approval for:
1. Issuance of 47.1 crore shares worth ₹39,618 crore to MUFG through a preferential issue on a private placement basis.
2. Granting certain controlling rights to MUFG Bank.
3. A one-time, non-recurring $200 million payout by MUFG to the promoter Shriram Ownership Trust for non-compete and non-solicit obligations.
Stakeholders Empowerment Services (SES) has opposed all three proposals, while Institutional Investor Advisory Services has specifically opposed the third resolution. In contrast, InGovern Research Services has expressed support for all resolutions necessary to facilitate the deal. These resolutions will be presented for shareholder approval soon.
**Conclusion**
The $4.4 billion deal between Shriram Finance and MUFG marks a significant milestone in India’s financial landscape, with potential benefits for the company’s growth and stability. However, the scrutiny from proxy advisors highlights the complexities involved in such large transactions. As the deal progresses, its implications for shareholders and the broader market will be closely monitored.
**FAQ**
**What is the significance of the Shriram Finance and MUFG deal?**
The deal is significant as it represents India’s largest cross-border transaction in the financial sector, expected to enhance Shriram Finance’s capital base and improve its financial stability and growth prospects.
