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These three, along with Warburg Pincus, have been shortlisted after non-binding bids were submitted by potential buyers in mid-December. They are currently engaged in conducting due diligence. Binding bids are due in a fortnight.
Parent Shriram Finance, which is mainly involved in commercial vehicle financing, owns 84.82% of SHFL, which focuses on affordable homes. San Francisco-based PE Valiant Capital Management owns most of the remaining stake.
The company expects a valuation of Rs 6,500 crore for the business, inclusive of a control premium, but the initial offers have been in the Rs 5,000-5,500 crore range, said the people cited above.
After last year’s failed attempt to sell a stake, parent Shriram revived talks late last year, appointing Avendus, Barclays and JM Financial as advisers on the sale.
Depending on the negotiations, Shriram and Valiant may retain a small stake but the acquirer will be the controlling shareholder and run the company.
“Over the past four years, Shriram Housing has been growing at a healthy clip. It needs capital for growth. In this context we are evaluating both internal and external options for raising capital to fund Shriram Housing’s growth plans,” a Shriram spokesperson said.
“The extent of stake sale is a subset of what valuation the company gets,” said another person. Last year, it was officially stated that Shriram Finance may sell up to 15% stake to bring in growth capital for the mortgage lender, which has grown fourfold in the last three years.
CVC didn’t respond to queries. Advent, Bain and Warburg Pincus declined to comment.
Earlier this month, Blackstone-owned affordable housing company Aadhar HFC refiled its draft papers with the Securities and Exchange Board of India (Sebi) to raise around Rs 5,000 crore through an initial public offer (IPO).
SHFL declared a 69% year-on-year jump in profit after tax to Rs 61.4 crore for the December quarter. For the nine-month period, profit after tax was Rs 155 crore, up 54% from the year earlier. Assets under management as of December 31 grew to Rs 12,025 crore. For the nine months until December, disbursals stood at Rs 5,289 crore.
The tangible net worth (TNW) of the company stood at Rs 1,298 crore at the end of FY23 and is expected to rise to Rs 2,000 crore at the end of FY24. The management has said SHFL is expecting to scale up assets under management to Rs 20,000 crore by the end of FY25, mainly through the organic route as well as strategic acquisitions. The draw for the PE funds, three of which don’t have housing finance exposure, are the platform and growth expectations via bolt-on buyouts, experts said.
At the end of FY23, housing finance accounted for 64% of SHFL’s portfolio and non-housing the rest, as per Care Ratings’ calculations last October.
“SHFL commenced lending operations in December 2011,” Sanjay Aggarwal of Care Ratings said in a note at the time. “However, lending under the newly revamped model began only post-January 2019. This book has a relatively limited track record and seasoning of the loan portfolio. The loan tenure ranges from 12 years to 16 years. SHFL is primarily lending towards the housing finance needs of self-employed customers who are not serviced by the banking sector.”
The PEs may rope in co-investors such as their limited partners — pension and sovereign wealth funds, many of which are also actively scouting for direct opportunities.
As a group, Shriram wants to focus on newer financial products and the digital business. The Shriram Group has ventured into the asset reconstruction business and unsuccessfully bid for Blackstone’s ARC. It also launched a financial super app —Shriram One — for investment planning, lending, UPI money transfer, mobile recharge, bill payments and insurance among others.
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