How the merger of Shriram Transport and SCUF will add value

Two of the largest non-banking finance companies (NBFCs) based out of South India, Shriram Transport Finance Company (STFC) and Shriram City Union Finance (SCUF) announced they had secured the approval of STFC shareholders and STFC creditors for the merger. While Shriram Transport Finance is India’s largest commercial vehicle financer, Shriram City Union Finance (SCUF) is a more diversified financing play in the Indian market and caters to all categories of funding. The merger would not offer a full suite.

Out of the total voters that were cast, a total of 97% votes of the equity shareholders were in favour of the merger while a total of 99% of secured and unsecured creditors of the companies were in favour of the merger. The meeting was convened by the National Company Law Tribunal (NCLT) on July 4th as per the extant requirements of any merger transaction, which also requires the approval of the equity shareholders and the creditors apart from the approval of the relevant regulatory authorities. 

Of course, as of now the approval has been obtained from the shareholders and the creditors of Shriram Transport Finance. The approval marks the completion of one of the few remaining closing conditions for the merger. Both the companies are part of the reputed Shriram group of Chennai. Now the approval of the shareholders and the creditors of Shriram City Union Finance (SCUF) is pending. In addition, approvals of the NCLT, Competition Commission of India (CCI) and IRDAI is also still pending.

In an industry that is increasingly looking at consolidation for synergies, this was a logical move for both the companies. The merger is a golden opportunity for the Shriram group to increase its contribution to India’s growing financial needs. The merger will also allow the merged entity to build the scale, resilience and diversity to thrive in the new paradigm. This will help to build a diversified loan book, which will be able to manfully withstand the test of economic and credit cycles from a growth and asset quality perspectives.

The merger between these two entities had been first agreed upon in December 2021. The fruition of the transaction should still take a few more months subject to approval. Shriram Transport can now broaden its offering from the business of commercial vehicle lending to offer a complete range of retail loans. The combined portfolio would include two-wheeler loans, MSME loans and gold finance; apart from the traditional vehicle finance. The merger will also effectively create India’s largest retail Non-Banking Financial Company (NBFC).

This is not the first time that the company has tried a two way merger. There was a grand plan a few years back with the involvement of HDFC, IDFC and the Shriram group; wherein the Piramal group was to get control of the Shriram NBFC business. However, that was not to happen due to delays in approvals from the relevant authorities. Eventually, the merger proposal was dropped. Now, this merger will create a non-banking behemoth, Shriram Finance, which will virtually straddle the entire gamut of financial services.