IFC, Other Investors To Infuse $200 Million In Shriram Transport

International Finance Corporation, a World Bank arm, and other investors agreed to infuse $200 million in Shriram Transport Finance Company Ltd. to fund purchases of commercial vehicles and support small businesses.

“Half of the total amount will come from IFC’s own account and the rest mobilised from ‘like-minded partners’,” the company said in a media statement. “The first tranche of $82 million has been disbursed, of which half is from IFC.”

The deal uses a unique securitisation structure, or pooling of assets, to mitigate foreign exchange risks and attract patient capital (long-term capital) from pension funds, insurance firms, and foreign institutional investors, the statement said.

“This is the first time IFC has picked up assets via a securitisation structure for any financial entity and it’s a rupee transaction, which reduces their hedging cost,” Parag Sharma, chief financial officer at Shriram Transport, told BloombergQuint. “Earlier IFC would give term loans or subscribe to bonds in U.S. dollar.”

The proceeds will be used for lending to small road transport operators and micro, small and medium enterprises in rural and semi-urban areas in low-income states, the company’s statement said.

“The demand is expected to be good in intermediate commercial vehicle and light commercial vehicle segments,” Umesh Revankar, managing director and chief executive officer of Shriram Transport, told BloombergQuint. “In the heavy commercial vehicle segment, there’s additional capacity which may change if there is a pick-up in economy.”

Hemalata Mahalingam, manager (financial institutions group) at IFC South Asia, said commercial vehicles are an important engine for growth as they boost incomes and create jobs. “The unique securitisation structure will channel patient capital from diverse financial sources into the non-banking financial company segment and support the development of India’s debt capital markets,” she said in the statement.

Currently, more than 90 percent of investor participation in Indian securitisation transaction is from banks, the statement said, adding they purchase securitised portfolios from NBFCs to achieve loan book growth and meet priority sector lending requirements. The participation of foreign and private institutional investors, such as pension funds and insurance companies, is limited, it said.

However, this is not the first time IFC has invested in Shriram Transport. In 2016, the World Bank arm invested in the company to help expand its MSME loan portfolio to low-income states. In 2017, it invested in the company’s first offshore, rupee-denominated bond issuance, also known as Masala bonds, to enable diversification of its funding sources.