Magma Fincorp focuses on small loans
Stock markets approved the development on Thursday, with the company’s shares rising nearly 10% to end at Rs 93.40 on BSE.
Posted on 02.12.21, 01:48 AM
Adar Poonawalla, who is set to acquire Magma Fincorp (MFL), said on Thursday that the deal caused a change in his plans for the financial sector: Poonawalla Finance, its current non-bank finance company (NBFC) will cease to exist while MFL will focus on small loans.
On Wednesday, Rising Sun Holdings Pvt Ltd, a company controlled by Poonawalla and MFL, announced a preferential issue that will lead Rising Sun Holdings to own 60% of MFL.
As a result of the award, the stake of the existing promoter group would be reduced to 13.3% even as MFL’s net worth rose to over Rs 6,300 crore.
Magma Fincorp and its subsidiaries will also be renamed and renamed Poonawalla Finance, subject to regulatory approvals. After the finalization of the preferential allocation, the existing financial services business of Poonawalla Finance will be consolidated into Magma Fincorp.
Stock markets approved the development on Thursday, with Magma Fincorp stock rising nearly 10% to end at Rs 93.40 on BSE.
Speaking to a commercial TV station, Poonawalla said that while Poonawalla Finance (which started operations two years ago) provides personal loans and to SME segments, they plan to relinquish the loan license even then. that MFL will carry the Poonawalla Finance brand.
“After the ILFS crisis, Magma Fincorp had struggled to raise funds in the capital markets and its dependence on bank loans has grown steadily. In addition, volatile trends in asset quality (particularly in auto finance) had kept profitability under constant pressure. This transaction would strengthen Magma’s overall capital position and allow the company to realign its activities as desired, ” Emkay analysts said in a note.
Magma Fincorp’s board of directors will also be reconstituted with Rising Sun Holdings proposing to appoint Poonawalla as chairman of the company and Abhay Bhutada, currently Managing Director and CEO of Poonawalla Finance, as Managing Director. However, Sanjay Chamria would continue as executive vice chairman of the board.
An open offer will also be made by Rising Sun Holdings, Mayank Poddar and Sanjay Chamria to which a preferential allotment is made. Magma Fincorp will allocate 45,80,000,000 shares to Rising Sun Holdings and 3,57 14,286 shares to Chamria and Poddar at a price of Rs 70 per share. The open offer will be made at the same price.
Commenting on developments, analysts at ICICI Securities said Magma Fincorp was the target of the liquidity crunch when the risk aversion of banks and debt investors was at its peak, albeit in the midst of it. was coming out gradually. Supporting a strong corporate group with a substantial infusion of funds will likely have a positive impact on its credit scores and keep the cost of funds low, they added.