Shriram Finance: Spotlight on Shares Before Board Meeting for MUFG’s $4.45B Investment

Shares of Shriram Finance are expected to attract significant attention on Friday, December 19, as the company is set to hold a board meeting to review a proposed strategic investment of $4.45 billion (Rs 40,000 crore) from Mitsubishi UFJ Financial Group (MUFG). If approved, this deal would represent the largest foreign direct investment (FDI) in India’s financial services sector.

According to previous reports, Japan’s leading bank, MUFG, plans to acquire a 20% stake in Shriram Finance by injecting primary capital at Rs 842 per share. This price reflects a 3.44% discount compared to the stock’s last closing price of Rs 869.20.

The investment will assign a market capitalization of Rs 1.63 lakh crore to Shriram Finance, making it the second-largest non-banking finance company (NBFC) in India, with Bajaj Finance holding the top position.

MUFG’s board gave the green light for this proposal in Tokyo earlier this week, and Shriram Finance’s directors are anticipated to provide their approval on Friday. Notably, this capital influx will not include any secondary share sales.

Following the investment, MUFG is poised to receive two board seats and has expressed interest in potentially increasing its stake in the future, which could lead to an open offer.

The current promoters, Shriram Ownership Trust and Sanlam from South Africa, will see their stake decrease from 25.39% to 20.05% because of the enlarged capital base. Other notable institutional shareholders include the Government of Singapore (4.73%), Kotak Mahindra MF (2.09%), Fidelity (1.14%), and the Monetary Authority of Singapore (1.07%).

This deal comes after MUFG’s previous unsuccessful attempt, last year, to invest $2 billion in HDB Financial Services, the NBFC arm of HDFC Bank. Since then, the Japanese bank has sharpened its focus on acquiring substantial stakes in thriving NBFCs within India.

Recent guidelines from the Reserve Bank of India permitting banks to hold equity in NBFCs have expedited this transaction, with discussions intensifying since June. Experts believe that this investment might catalyze a credit rating upgrade for Shriram Finance and reduce borrowing costs by 50–60 basis points.

JP Morgan, AZB & Partners, and Wadia Gandhi are advising on this significant deal.