Murugappa Group companies to share cost of DBS stake acquisition

Murugappa Group companies Tube Investments and New Ambadi Estates would equally share the buy-out cost of DBS stake in the joint venture DBS Cholamandalam. The exit of DBS Bank from Cholamandalam DBS Finance (CDFL) would cost the Murugappa Group a total of Rs376 crore.

Chennai-based Murugappa Group and Singapore-based DBS Bank are in the process of exiting the joint venture Cholamandalam DBS Finance (CDFL).

Murugappa Group will acquire DBS' 37.48 per cent stake in the JV at Rs91 a share and the transaction would be completed on or before 12 April.
 
According to MA Alagappan, chairman, Cholamandalam DBS, the joint venture was set up in 2005 to gain expertise in the personal loan business at the time but, later, with the portfolios running into problems, the personal loans operations were stopped in September 2008 and since then the company had gone back to the business it had been into for the last 30 years - asset financing.

The company, therefore, felt there no longer was any need for a partnership and could go back on its own.

With this, the Murgugappa Group would regain control over the 30-year-old NBFC and would also get the two closely-held subsidiaries engaged in distribution and brokerage. It would apply to the RBI for making CDFL a public deposit-taking company.

The transaction would increase Murugappa Group's stake in the NBFC to 74.96 per cent and the group through Tube Investments would also acquire the Rs150-crore investment by DBS Bank by way of 1 per cent fully convertible preference shares.
 
According to analysts, the buyout would not trigger an open offer since both companies are promoters in the company. Senior DBS officials said the group was now targeting the affluent segments and not the mass consumer market.

DBS is now aiming at increasing the contribution from India operations from the current 8 per cent of global revenues to the mid-teens over the next few years. Currently, India stands at the number 3 in terms of the volume of operations of the Singapore-based bank.

According to Piyush Gupta, CEO of DBS, the group had spent some time deciding what would be the main opportunities for it in India in terms of businesses like corporate investment banks, SME space, affluent and near affluent customers. The focus on mass consumer segment was not part of the group's strategy in the foreseeable future, he added.