In terms of the transaction announced by the two groups on Wednesday, the company will make a preferential allotment of Rs 3,456 crore by issuing 45.8 crore shares to Poonawalla’s Rising Sun Holdings, and 3.6 crore share to Chamria and Poddar. The preferential allotment represents 64.7% of Magma’s enhanced equity with Rising Sun Holding owning 60% post-issuance and the existing promoters controlling 13.3%.
The net worth of Magma Fincorp will rise to Rs 6,300 crore post-issuance. Magma Fincorp and its subsidiaries shall be renamed and rebranded under the brand name “Poonawalla Finance”. These are subject to all requisite regulatory approvals.
After the completion of the preferential allotment, the existing financial services business of Poonawalla Finance is proposed to be consolidated into Magma Fincorp with Poonawalla being proposed for chairman. Chamria would continue to be the vice-chairman but step down from MD’s position, which will be taken over by Abhay Bhutada, MD & CEO of Poonawalla Finance.
TOI had reported in August 2020 on the Poonawalla Group’s ambitions for the financial sector.
“Financing is now a big boy’s game. We started out with just three people and now have close to 10,000 employees and Rs 15,000 crore of assets. Now you need huge capital and you also need to have the ability to raise money at very cheap rates,” said Chamria, speaking to TOI. He added that this deal would benefit everyone concerned.
While the Poonawalla Group gets scale and a pan-India presence, the Magma business would also benefit because the capital will improve its credit rating and ability to raise funds. Shares of the company had risen 10% before the announcement to nearly Rs 85.
The management team will be further strengthened through the appointment of a professional CEO & COO from among the best in the industry, with substantial experience of running large financial services’ businesses. Magma Fincorp has an AA rating from Acuite Ratings and AA- rating from Care for its long-term bonds.
Magma Fincorp’s consolidated net profit had fallen 42% to Rs 13 crore in the third quarter due to pressures arising out of the pandemic. The rating agencies had, however, reaffirmed its AA grade. The company was launched as Magma Leasing in 1989 and was backed by KKR, which picked up a 14.9% stake that it exited through market sales a few years ago.
Poonawalla, CEO of Serum Institute of India, has been in the news during the pandemic because of the central role his company is playing as the world’s largest vaccine manufacturer.
Although based in Mumbai, Magma is focused on the rural and semi-urban sector with widespread coverage and presence across 21 states with 298 branches.