Poonawalla Fincorp to divest stake in Magma HDI General Insurance

The Board of Directors of Poonawala Fincorp Ltd (PFL) has approved the liquidation of the company’s direct and indirect ownership in Magma HDI General Insurance in order to comply with the requirements of the Reserve Bank of India and IRDAI.

Sanoti Properties, owned by Adar Poonawalla and Serum Institute of India Private Limited; He agreed to acquire the company’s direct and indirect stake in Magma HDI. This structure is aligned with other financial services groups with NBFC and general insurance operations and will also allow the framework for an ongoing business relationship between PFL and Magma HDI.

As part of the liquidation, PFL will also relinquish its 48.89% stake in Jaguar Advisory, which as a result of the above transaction in MHDI shares in cash and cash equivalents, to Celica Developers, joint venture partner in Jaguar Advisory.

In addition to complying with industry regulators’ requirements, divestment is in line with PFL’s strategy to focus on its core lending business. By monetizing the investment in Magma HDI, the company will have to allocate full capital to the core lending business. The proposed transactions will result in a pre-tax profit of Rs. PFL’s Rs 351.85 crore and sale of the stake will result in an effective increase in Tier 1 capital adequacy ratio from 52.2% to 56.1%.

It is suggested that the evaluation of the transaction be on the basis of the subsequent evaluation of funds NSRs 1,500 crore for Magma HDI (including proposed share issue of NSRs.250 crore was announced by Magma HDI in March 2021, currently awaiting regulatory approvals). Magma HDI has received a valuation report for itself from corporate valuation services professionals, a registered independent appraiser, and PFL has received a fair opinion on it from Ernst & Young Merchant Banking Services LLP.

Wadia Gandy & Co serves as legal counsel to PFL.

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