Six NBFCs eye Citicorp Finance portfolio

CHENNAI/MUMBAI: Shriram Transport Finance (STFC), Ashok Leyland (ALL), Magma Shrachi and Reliance Capital are believed to be ahead in the race for buying a $1-billion loan portfolio of Citicorp Finance.

These non-banking finance companies (NBFCs) are among six players who have been shortlisted in the second round of bidding, sources said. A due diligence is currently on, and a sale is likely in a couple of months.

As part of its global strategy, Citigroup recently put the commercial vehicle & construction equipment loan portfolio of its NBFC Citicorp Finance on the block.

Sources pointed out that Citi is eyeing over Rs 850 crore from the sale. However, the bidders are believed to have valued the portfolio lower, at Rs 450-500 crore. Citi is not expected to close the deal unless it gets a good enough valuation. Citi officials refused to comment.

Shriram Transport MD R Sridhar declined to comment, stating the company���s policy is not to comment on speculation. But company sources confirmed that it is very much in the race. STFC manages the truck financing portfolio of Indian and foreign banks and has a five-year long relationship with Citicorp Finance.

Magma Shrachi MD Sanjay Chamria confirmed that his company is bidding, but refused to go into details. Ashok Leyland, another bidder, feels there is a gap in meeting its needs after its promoters, the Hinduja group, decided to strengthen Indusind bank by merging Ashok Leyland Finance (ALF), which was promoted by ALL.

Since then, Indusind has turned brand-neutral in vehicle finance and its share of financing ALL vehicles has come down.

Ashok Leyland CFO K Sridharan explained the rationale for the bid, saying it helps the company ���make a headstart by acquiring a good portfolio as well as a large number of customers of Tata Motors.��� Buyers of Tata Motors vehicles account for the bulk of Citicorp Finance���s CV loan portfolio.

���We have strong tie-ups with more than six banks and NBFCs for vehicle financing. Still, we want to have a focused funding arrangement. After the merger of ALF, we have been looking at having our own format for vehicle financing,��� he added.

Moreover, half of the portfolio on sale is construction equipment finance. This may not be of immediate interest for ALL, but its acquisition will bring in synergies once the company starts manufacturing construction equipment in an year, Mr Sridharan explained.

Incidentally, the successful bidder for the Citicorp portfolio will also have to take its 300 employees on board. This is probably the first time any institution is asking a buyer to absorb the staff as well.

Even though some of the private sector banks had initially looked at this portfolio, they backed out as they felt that returns on the portfolio were not good enough. The blended rate of this portfolio is in the range of 11.5 to 12.5%. NBFCs are unlikely to offer a better rate than what banks would have offered, given that the cost of financing for them is higher.