Rising Sun Holdings, controlled by Adar Poonawalla, will acquire a 60 percent stake in non-bank finance company (NBFC) Magma Fincorp by underwriting a prime issue of Rs 3,456 crore. After the capital infusion, Magma and its subsidiaries will be renamed and renamed Poonawalla Finance.
Poonawalla Finance is an existing finance company owned by the Poonawalla family, who own and control the Serum Institute of India. As part of the deal, Magma Fincorp (MFL) will allocate 458 million shares to Rising Sun Holdings and 35 million shares to Sanjay Chamria and Mayank Poddar, Magma and Poonawalla Finance said in a joint statement Wednesday.
The preferential allocation represents 64.68 percent of MFL’s enhanced capital stock after issuance. Rising Sun Holdings will retain 60 percent of the entity after issuance, and the existing promoter group’s stake will be reduced to 13.3 percent. MFL’s net worth will increase to more than Rs 6.3 billion, according to the statement.
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Magma shares closed up 10 percent at 84.95 rupees on the BSE on Wednesday.
Sanjay Chamria, vice president and managing director of MFL, said the firm had 300 branches with 10,000 employees, spread over 22 states. With the proposed capital injection, the company expects an improvement in productivity and the operating matrix. The existing promoters will infuse Rs 250 crore and Poonawallas will bring in Rs 3,200 crore as capital.
Following the completion of the preferential allocation, it is proposed that Poonawalla Finance’s existing financial services business be consolidated into Magma Fincorp subject to compliance with current regulations. Adar Poonawalla will become the chairman of the board of directors and Abhay Bhutada will become managing director. Chamria will continue as Executive Vice President.
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The management team will be further strengthened by appointing a professional CEO and COO among the best in the industry, with substantial experience managing large financial services companies, they said.
The acquisition of a controlling stake coupled with a large capital injection is expected to have a positive impact on business operations, including for customers, employees, lenders and other stakeholders.
After the transaction, MFL will be able to take advantage of the vast opportunities in the loan space with the expected reduction in the cost of loans.
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