“This is a very significant fund-raise, our current networth is about ₹2,560 crore and this is about ₹3,450 crore. It is more than 150 per cent of our current net worth,” said Sanjay Chamria, Vice President and Managing Director, Magma Fincorp, on the proposed deal with Adar Poonawalla-controlled Rising Sun Holdings.
In an interview with BusinessLine, Chamria said it will benefit both Magma and Poonawalla Finance and regulatory approvals are expected soon. Edited excerpts:
What are the plans once the deal is finalised?
From my understanding, in addition to the product range that Poonawalla Finance has, which is professional loan and business loan, Magma has seven products and that is what they see as an advantage. We have a secured product range — used assets, tractors, LAP, affordable housing, MSME. Adar Poonawallas’s idea is that India is a vast and untapped market for tapping micro and small enterprises, which are constantly deprived of loans from the banking sector. Magma being a 32-year old organisation with 300 branches provides a readymade platform.
Also read: Magma Fincorp hits 52-week high after Poonawalla backed firm picks 60% stake
What is the benefit to Magma Fincorp?
Magma, on its own, was finding it difficult to compete with the big boys due to their capital base, huge corporate backing, cost of funds being higher, and rating.
Poonawalla Group has today become synonymous with the vaccine and such a large group with so much of cash reserve will provide a lot of strength to Magma in terms of credit rating, dealing with the banking system and lower cost of funds. That way one can also service the customers better by lowering the rates at which you lend and get better quality customers and asset quality also improves. It becomes a virtuous cycle rather than a vicious cycle.
When is the transaction likely to be completed?
The shareholder meeting is on March 9 and we are simultaneously applying to the regulators for approval. We are a listed company and are regulated by the Reserve Bank of India, National Housing Bank and Insurance Regulatory and Development Authority of India. This deal is at the listed company level and that is the holding company for the housing finance company and also the dominant promoter in the insurance company. There is also CCI approval we have to get. All these regulatory approvals will move on a parallel manner and we should be able to consummate it sooner than later.
Has liquidity been a problem for Magma post the pandemic?
Liquidity has not been a problem, it has been available in abundance. Even in our quarterly results, we have said over the last three quarters we are sitting on a liquidity of more than ₹2,000 crore but our cost of funds is 9.5 per cent, whereas Poonawalla Finance’s cost of funds is 7.2 per cent. The differential is 2 per cent plus. In finance, money is the raw material. So, if that is higher, that can make an enormous difference. The rating is AA+ given the small corporate backing of Poonawalla Finance and our rating is AA-. The credit rating will improve.
Also read: ₹3,456-crore deal: Adar Poonawalla-backed firm to pick 60% stake in Magma Fincorp
What happens post consolidation of the two businesses? Will the headquarters move from Kolkata?
Poonawalla Finance will surrender the NBFC license and will get consolidated into Magma and Magma will be renamed Poonawalla Finance. It will get a new brand and get the backing of the strong corporate group. Adar will become the Chairman of the company and I will continue as the vice chairman. My role will be to ensure the process is smoothed and the integration becomes successful. Shifting of head office will be looked at later, nothing will be done in a disruptive manner. Magma’s corporate office is already in Mumbai.