The Hindu : Business : DBS to pick up 37.5 p.c. stake in CIFCL for Rs. 228 cr.

Online edition of India's National Newspaper
Friday, Jun 17, 2005

Business

Business

DBS to pick up 37.5 p.c. stake in CIFCL for Rs. 228 cr.

Special Correspondent

Size and expertise of DBS can add significantly to Cholamandalam's existing strength

COMING TOGETHER: The Chairman of Cholamandalam Investment and Finance Company, M. A. Alagappan (left), with the Vice Chairman and CEO of DBS Group Holdings and DBS Bank, Jackson Tai, at a press conference in Chennai on Thursday. — Photo: Bijoy Ghosh

CHENNAI: In a significant move, the Murugappa Group has decided to dilute its stake in Cholamandalam Investment and Finance Company Ltd. (CIFCL), a non-banking finance company with an asset base of over Rs.1,980 crore, and settle as an equal partner with DBS Bank of Singapore.

CIFCL offers vehicle finance, corporate and mortgage finance, capital market finance and fixed deposits.

A deal to this effect was inked here on Thursday by Jackson Tai, Vice-Chairman and CEO of DBS Group Holdings, and M. A. Alagappan, Chairman of CIFCL. The transaction, however, is subject to various regulatory and shareholder approvals.

The Murugappa Group — mainly through Tube Investments of India Ltd. (TI) — owns now 55 per cent stake in CIFCL. The deal will see DBS Bank and the Murugappa Group holding 37.5 per cent stake each in CIFCL. Both will nominate an equal number of directors on the board of the company. Eventually, CIFCL will be renamed as Cholamandalam DBS Finance Ltd.

The arrangement will see DBS Bank invest around Rs. 228 crore (Singapore $87million). This will be funded by internal accruals. The induction of DBS Bank as equal partner in the company will happen in three phases. The first phase will see it purchase 15.10 per cent stake held by TI at a price of Rs.150 per share of the face value of Rs.10 each. There will also be a preferential offer of three million shares. Finally, there will be an open offer to buy 20 per cent shares from minority shareholders.

The transaction combines CIFCL's distribution strength in auto finance and the expertise of DBS in financial product development, credit assessment and risk management. Mr.Alagappan said "the size and expertise of DBS can add significantly to Cholamandalam's existing strength.''

Two Asian partners

The financial services group of the business has already a joint venture with Mitsui Sumitomo of Japan in non-life insurance business. The current arrangement with DBS, he said, ``will give Cholamandalam a unique advantage of working with two large Asian partners who understand the business imperatives and culture of these markets well.''

M. Anandan, Managing Director, CIFCL, said the mode of arriving at equal partnership was driven by the regulatory constraints. With a capital adequacy ratio of 18 per cent and net worth of over Rs. 300 crore, CIFCL was adequately placed for funds in the current year to meet the immediate business plans. Stating that the partners were drawing up a business plan for the company in its new avatar, Mr. Anadan said the renamed CIFCL would get into retail and personal finance in a big way. Mr. Alagappan said both partners would infuse funds equally should the need arise.

CIFCL, it may be recalled, had an equal partnership arrangement between the Murugappa Group and Standard Chartered Bank. That CIFCL had become a Murugappa Group outfit is, however, a different matter. Mr. Alagappan said all those companies where CIFCL held 100 per cent shares would also be renamed to reflect the new arrangement. However, the insurance joint venture would retain its current format since TI held majority stake in the company. CIFCL, too, held some stake in the insurance venture, he added.

Rajan Raju, Managing Director and Head of South and South East Asia for DBS Bank, said the bank had indeed similar equity arrangements with non-banking finance companies in some countries. Mr. Jackson Tai felt that the entry of multi-national banks into the truck finance segment through this kind of arrangements would offer more choices for a customer and improve the service quality.

Mr. Alagappan and Mr. Anandan felt that the need to scale up in an environment, which was growing and turning acutely competitive, had made CIFCL to go in for this arrangement with DBS Bank, a subsidiary of DBS Group Holdings Ltd. headed by S. Dhanabalan.

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