India’s Mahindra Finance to acquire control of Ideal Finance for Rs.2bn

From left :Ideal Finance Ltd Chairman Nalin Welgama (fourth from left) exchanging agreement with Mahindra Finance Executive Director & Chief Financial Officer V. Ravi (third from left)  in the presence of Senior Vice President Marketing and Strategy R. Balaji ( second from left), Mahindra Finance Vice President - New Initiatives Mufaddal Choonia (extreme left), Ideal Group Deputy Chairman Aravinda De Silva(fifth from left) and Ideal Finance Chief Executive Officer Duminda Weerasekera ( extreme right). 
Pic by Nimalsiri Edrisinghe

• Enters JV to invest Rs.2bn in three tranches to acquire 58.2% 
• Ideal Finance likely to go for CSE listing in late 2021

By Nishel Fernando

Mahindra Finance, a unit of India’s Mahindra & Mahindra (M&M) this week entered into a joint venture with Ideal Finance Ltd., a fully owned subsidiary of Sri Lanka’s Ideal Group, investing Rs.2 billion to acquire 58.2 percent stake in the finance firm.

Mahindra Finance plans to complete the acquisition of Ideal Finance in March 2021, investing the money in three tranches. 

Mahindra Finance yesterday reached an agreement to invest Rs.700 million initially in Ideal Finance, acquiring 38 percent stake in the firm, while the second and final tranches are scheduled for completion in 2020 and 2021. 

“We are going to create a NBFI which will become a benchmark, an ‘Ideal’ company, reaching millions of Sri Lankans, in both urban and non-urban sectors.

“We will primarily focus on expanding our presence in vehicle finance and vehicle leasing. Beyond that, we will also be looking at enhancing our engagement in financing SMEs as they are the engine of Sri Lanka’s economy,” Mahindra Finance Senior Vice President Marketing and Strategy, R. Balaji told reporters in Colombo.

usiness that Mahindra Finance is likely to seek a listing on the Colombo Stock Exchange (CSE) by late 2021 upon completion of the  firm’s consolidation.

Ideal Finance had a capital base of around Rs.1.25 billion and Rs.5 billion in assets prior the JV with Mahindra Finance. Fitch Rating earlier this year revealed that the Central Bank has limited deposit taking at Ideal Finance, following the failure of the firm to meet Rs.1.5 billion capital requirement on January 2019. However, Welgama reasoned that the firm failed to meet the capital requirements as Ideal Finance was in negotiations with Mahindra Finance. 

He noted that the Central Bank didn’t take extreme measures as it was aware of the development. 

“Rs.700 million which we infused would take care of the regulatory requirements not only for the current year, but also enhanced capital requirements for the next year,” Balaji stressed.
As per the Central Bank regulations, NBFIs are required to maintain a minimum of Rs.2 billion and Rs.2.5 billion in capital by 2020 and 2021.

Welgama was optimistic that Ideal Finance will be elevated to Tier 1 category with the JV in a short span of time. Mahindra Finance officials said Sri Lanka emerged as the first choice for its overseas expansions under global growth strategy, given the country’s cultural and geographical similarity to India and its vibrant financial services market.

Mahindra Finance is already in operation in the United States with a joint venture partner. 

Highlighting a key focus area for Ideal Finance with the JV, Mahindra Finance Executive Director /Chief Financial Officer, V. Ravi noted the firm intends to leverage on opportunities arising from recently launched joint vehicle assembly plant of M&M and Ideal Motors. “The vehicle assembly-that’s where our collaboration and association with M&M Group is going to be quite handy for us. The Mahindra parent company has to get supplies from many vendors, who will become a natural target for us,” he said.  

Commenting on expansion plans for Ideal Finance, Ravi said Mahindra Finance is currently in the process of finalising business plans in consultation with Ideal Group, while getting familiarised with the Sri Lankan market. 

Balaji noted that Mahindra Finance which solely acted as a capital finance company for M&M has expanded to several areas including SME financing, insurance distribution and mutual funds by managing assets worth of over US $ 10 billion at present.

“More or less, we will be following the same approach,” he said. 

Presently, an estimated 70 percent of assets of Ideal Finance are in vehicle leasing while around 6 percent are in real estate. Fitch had raised concerns on the firm’s exposure to the 
real-estate sector. “This firm will wind down its real-estate exposure. Even in India, we don’t have any exposure to real-estate,” Balaji noted.   Ideal Finance commenced operations in March, 2012. It has ten branches, of which nine are outside the Western province located in Jaffna, Anuradhapura, Kurunegala, Bandarawela, Embilipitiya, Moneragala, Elpitiyia, Matara  and  Kandy. 

Its current staff strength is 142, and the majority is based in the branches.