BNP Paribas picks 50% in SREI Infra arm

MUMBAI: French bank BNP Paribas has bought a 50% stake in the equipment finance arm of SREI Infrastructure Finance for Rs 775 crore. This is the largest transaction so far in the country’s non-banking finance space.

The development reflects a larger trend where foreign entities have been buying into NBFCs. In the absence of stringent regulations to expand as a bank, NBFCs offer a way to make inroads into the asset financing market.

SREI will demerge its equipment finance business and BNP Paribas Lease Group (BPLG), the leasing arm of BNP, will pick up equity in the new entity, SREI Infrastructure Development Finance. The new company will also hold the share capital of SREI Insurance Services, and will undertake other asset-based financing.

This is how the transaction will happen: SREI will chip in Rs 25 crore into a subsidiary, and transfer/sell some of its businesses to the subsidiary. BNP will invest Rs 775 crore into the subsidiary, of which Rs 375 crore will be transferred to SREI. The net worth of the new JV after the subscription by BPLG will be Rs 800 crore.

Underlying the deal, there are call options for BPLG and put option for SREI which can be exercised by the JV partners at any time after April 1, 2030 under specific situations. These are a possible default by SREI or the promoters or BPLG, dilution below certain specified levels, change of control of SREI, and the promoters ceasing to be the MD of the JV company.

SREI vice-chairman & MD Hemant Kanoria said, “The equipment finance business has been valued at Rs 1,600 crore. We are the largest player in the infrastructure equipment finance space. BPLG will help in expanding the product line into financing of agriculture, information technology, medical and other equipment. SREI will be left with infrastructure project finance, advisory and venture capital business.”

The transaction was done at three times the book value of SREI. The current book value of SREI is at Rs 42 a share. The present market cap of SREI is Rs 783 crore. The scrip rose 19.9% to Rs 71.80 on Thursday.

Recent years have seen a string of transactions in the NBFC space. DBS had picked up a 37.5% stake in Cholamandalam Investments and Finance Company (CIFCL), belonging to the Murugappa Group for Rs 228 crore. Newbridge had invested around Rs 450 crore in three companies of the Chennai-based Shriram group.

Hemant Kanoria and Sunil Kanoria, the promoters of SREI will be in charge of the day-to-day management of the JV company. The board representation will, however, be split equally between BNP and SREI.

In the last few years, BNP has turned more aggressive in India. It has through different arms picked up stakes in Sundaram Home Finance and the brokerage Geojit Financial this year. It has a 49.9% stake in Sundaram BNP Paribas Asset Management.

It is also in the process of buying a 34.35% stake in Geojit Financial Services. It owns a 26% stake in SBI Life Insurance. According to Frederic Amoudru, BNP India head, the group has invested around $500 million in the country, including $160 million in its branch operations.