DBS Bank of Singapore has formed a 50:50 retail finance company in India with Cholamandalam Investments and Finance Company Limited (CIFCL), a part of the Murugappa Group. It covers consumer finance, asset management and securities in India.
“We are pleased to be partnering the well-respected and well established Murugappa Group,” says Rajan Raju, Managing Director, Head of South and South East Asia for DBS Bank. “The deal is very much in line with DBS’s strategy of expanding the scale and scope of our operations across the region. We are particularly excited about the potential of the consumer finance business as our experience in Thailand with Capital OK has reaffirmed our confidence to serve the mass retail market, with quick and easy financing. Further, the Indian wealth management market is growing rapidly. We see significant potential in this business.”
The agreement was signed in Chennai by Jackson Tai, Vice-Chairman and CEO of DBS Group Holdings, and M A Alagappan, Chairman of CIFCL. The transaction is subject to regulatory and shareholder approvals.
DBS Bank and the Murugappa Group will be equal shareholders in CIFCL, one of India’s largest domestically-owned non-bank financial companies. The Murugappa Group, a US$1.5 billion conglomerate with diversified interests in agro industries, engineering, finance, insurance and bio-products, currently owns 55% of CIFCL principally through Tube Investments of India Ltd (TI).
CIFCL operates in 120 locations across India providing primarily vehicle finance as well as finance against shares and property. It also offers asset management, securities broking and distribution of financial products through its subsidiaries.
DBS says the transaction combines CIFCL’s distribution network in auto finance across India with DBS’ expertise in financial product development, credit assessment and risk management.
It involves DBS Bank buying shares from TI, making an offer to public shareholders and, finally, subscribing to a preferential allotment of shares by CIFCL to DBS Bank.
When completed, the transaction will result in DBS Bank and the Murugappa Group having equal shareholding of up to 37.5% each. Both will have the right to nominate an equal number of directors on the Board.
CIFCL will be renamed Cholamandalam DBS Finance Limited (Cholamandalam DBS). It will engage in vehicle finance and other retail financing such as personal loans and home equity.
DBS Bank’s investment will be up to Rs. 228 crores (S$87 million), to be funded by internal resources. All the shares will be purchased at Rs. 150 a share. This takes into account the value of the franchise and represents a price multiple of 1.82 times CIFCL’s book value at March 31, 2005 and a 7% premium to the average traded price of CIFCL over the past two weeks.
Cholamandalam DBS will introduce new products and aim to leverage on the existing distribution network and customer base of Cholamandalam and DBS’ regional capabilities to become a leading provider of consumer finance services.
“The Murugappa Group is happy to partner DBS Bank,” says MA Alagappan, the Chairman of TI and CIFCL. “The size and expertise of DBS can add significantly to Cholamandalam’s existing strengths. Together, we aim to achieve and sustain rapid growth in India’s fast-growing retail financial services markets. Financial services are a key part of our group. With this alliance, the group’s financial services businesses will comprise two JVs – one with Mitsui Sumitomo of Japan in non-life insurance business and the other with DBS of Singapore. Cholamandalam will thus have the unique advantage of working with two large Asian partners who understand the business imperatives and culture of these markets well.”
M Anandan, Managing Director, CIFCL, added that CIFCL has been expanding, and it aims to leverage its distribution and intangible assets in India with the financial strength and product expertise of DBS. “We expect that this will give us an accelerated entry into new product-market segments like personal loans and home equity,” he says. “The asset management and securities businesses will also benefit from the partnership. We are excited about the possibilities that this alliance opens up for Cholamandalam. Overall, we believe the alliance significantly increases the company’s potential to generate value for customers and shareholders alike.”
DBS’s Raju added that the investment in CIFCL will complement DBS’ existing operations in India. “DBS’s roadmap for South and Southeast Asia has been to grow organically through our existing branch network and through selective strategic alliances and acquisitions that complement our banking franchise,” he says. “We have rapidly expanded our Mumbai branch operations and recently, we’ve secured another branch licence in New Delhi. Together with the planned investment in CIFCL, DBS will be well positioned to better serve our individual and corporate customers in India.”
DBS’s branch in Mumbai services corporate and institutional clients with a full range of corporate and investment banking services.
CIFCL reported total assets (including securitised assets) of Rs.1959 crores as on March 31, 2005. The company’s income for 2004-05 was Rs.214 crores and net profit after tax was Rs.34.1 crores.
DBS is the largest bank in Singapore and the fifth largest banking group in Hong Kong with total assets of S$175.5 billion. It reported total income of S$4.5 billion (Rs 119.3 billion) and net profit after tax of S$1.9 billion for the year ended December 31, 2004. It has leading positions in consumer banking, treasury and markets, asset management, securities brokerage, equity and debt fund raising. The Bank’s credit ratings are among the highest in the Asia-Pacific region.