The board of directors of Poonawalla Fincorp Ltd (PFL) has approved divestment of the company’s direct and indirect shareholding in Magma HDI General Insurance in order to comply with requirements of the Reserve Bank of India and IRDAI.
Sanoti Properties, which is held by Adar Poonawalla and Serum Institute of India Private Limited; has agreed to acquire the direct and indirect stake of the Company in Magma HDI. This structure is in line with other financial services groups with NBFC and general insurance operations and will also allow a framework for continued business relationship between PFL and Magma HDI.
As part of the divestment, PFL will also divest its of 48.89% shareholding in Jaguar Advisory, which consequent to the above transaction of divestment in MHDI shares will own only cash and cash equivalent, to Celica Developers, the joint venture partner in Jaguar Advisory.
In addition to complying with the sector Regulators requirements, the divestment is in line with PFL’s strategy to focus on the core lending business. By monetising the investment in Magma HDI, the Company will have full capital allocation to its core lending businesses. The proposed transactions will result in a pre-tax profit of Rs. 351.85 crores for PFL and sale of stake will result in an effective increase in Tier 1 capital adequacy ratio from 52.2% to 56.1% .
The valuation for the transaction is proposed to be at a post-money valuation of ₹1,500 crore for Magma HDI (including the proposed equity issuance of ₹250 crore by Magma HDI announced in March 2021, presently awaiting Regulatory approvals). Magma HDI has received a valuation report for the same from Corporate Professionals Valuation Services Private Limited, Registered Independent Valuer and PFL has a received a fairness opinion on the same from Ernst & Young Merchant Banking Services LLP .
Wadia Ghandy & Co is acting as the legal advisor to PFL.
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