Goldman Sachs picks up 20% in Shriram Credit for Rs 300 cr

One of the world’s largest investment banking firms, Goldman Sachs, is picking up a 20% stake in Chennai-based Shriram Credit for Rs 300 crore, making an indirect entry into equity and commodity brokerage business in India. Shriram Credit is a non-banking finance company (NBFC) under the south India-based Shriram Group, which is engaged in lending activities.

The Indian group is transferring its brokerage and distribution services business to Shriram Credit and bringing in Goldman Sachs as a significant minority partner. The deal values the firm at Rs 1,500 crore ($375 million). Goldman Sachs is routing the deal through its 100% Mauritius-based subsidiary GS Strategic Investments.

This is one of Goldman Sachs’ major strategic moves after it broke ties with the Kotak Mahindra Group in 2006. The US-based investment banking firm has been present in India through its I-banking unit and has also been an active player in the private equity space. The partnership with Shriram Credit would allow Goldman entry into the brokerage and lending business.

Shriram Financial Services Holdings managing director DV Ravi told ET: “We are in discussions with certain prospective investors for giving a minority stake in Shriram Credit, which will eventually hold both the broking and distribution business. This is similar to our offering minority stakes in other group companies. We will keep you updated about the name of the investor and other related queries once we finalise the investment.”

However, sources said the deal has been finalised with Goldman Sachs. As per the initial agreement, the US-based I-banking firm also reserves the right to further expand its equity stake by 5% to take its stake in Shriram Credit to 25%. The transaction will be through a preferential allotment to Goldman Sachs.

Goldman Sachs’ former JV partners Kotak Mahindra Capital and Kotak Securities - as well as key promoters Uday Kotak and Anand Mahindra, have already given a no-objection certificate to Goldman Sachs picking up a stake in Shriram Credit.

Goldman Sachs India is known to have evinced interest in entering asset management services, besides lending and broking businesses. While the I-banking firm is awaiting green light from Sebi to start its asset management business in India, it is not clear whether the firm is looking to start afresh or buy equity in an existing company to enter other businesses.

Shriram Credit is a Chennai-based privately-held firm with a paid-up equity capital of Rs 3.24 crore. It is primarily engaged in asset finance and NBFC-based lending activities. In addition, it has a significant majority stake in Shriram Fortune Solutions, which markets and distributes financial products and is looking to get into marketing consultancy services.

According to sources, Shriram Credit is going to acquire close to 90% stake in Shriram Insight Share Brokers, which is into stock broking activities, apart from being a depository participant. Shriram Insight Share Brokers also has a step down wholly owned commodity brokerage subsidiary, Insight Commodities & Futures.

Through this deal, Goldman Sachs would, in one shot, get exposure to lending and equity and commodity brokerage sectors in India. Foreign investment norms currently do not allow direct investment in a commodity brokerage firm. However, foreign companies can invest in a firm, which in turn owns a separate commodity brokerage entity. The funds would be used for expansion of its existing and proposed businesses of Shriram Credit.

Goldman Sachs, which had investments in Kotak Securities and Kotak Mahindra Capital Company, had sold off its 25% stake in the firms in 2006 and had said it would start its own financial services firm in India.

The joint venture, formed in 1995, in itself was a break from tradition for Goldman Sachs, one of the oldest I-banking firms in the world with a history dating 1869. However, since then, Goldman Sachs Group has formed other such ventures, including a 33:67 JV with Gao Hua Securities to start an investment banking firm in China three years ago. The current deal with Shriram Credit can be seen as a continuation of this strategy for global expansion.

HIGHLIGHTS
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* Goldman Sachs to acquire 20% in Shriram Credit Co for Rs 300 crore; values the NBFC at Rs 1,500 cr
* The US-based I-banking firm reserves the right to hike its stake to 25%
* First significant equity venture by Goldman Sachs after breaking ties with Kotak Mahindra in 2006
* Shriram Credit is into lending activities
* South-based Shriram Group transferring its equity & commodity brokerage into Shriram Credit
* Goldman Sachs to get access to lending and brokerage business through this deal
* As of now Goldman Sachs is primarily into investment banking and private equity investments in India