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Shares of Magma Fincorp hit upper circuit after the Poonawalla Group acquired a controlling 60% stake in the non-banking finance firm by subscribing to a Rs 3,456-crore preferential issue.
The scrip jumped 9.95% to Rs 93.40 in the morning trade, while the benchmark BSE Sensex traded nearly 75 points, or 0.15%, up at 51,385.
The Poonawalla Group, which has a fledgeling NBFC arm called Poonawalla Finance which lends mostly to professionals, said the acquisition will be done through a group company called Rising Sun Holdings.
The transaction, subject to shareholders and regulatory nods and through a preferential issue of equity shares of Magma Fincorp worth Rs 3,456 crore, will result in Rising Sun taking over the company with 60% stake and an open offer under applicable Sebi guidelines, the Pune-based company, better known for the Serum Institute, said on Wednesday.
As part of the transaction, Magma Fincorp proposes to allot 45.80 crore or 60% shares to Rising Sun, and 3.57 crore shares to Sajnay Charmia and Mayank Poddar.
The preferential allotment represents 64.68% of Magma’s enhanced equity share capital post-issue and based on the current shareholding, Rising Sun will hold 60% stake and the existing promoter group’s stake will come down to 13.3%.
The equity infusion will result in the networth of Magma Fincorp rising to over Rs 6,300 crore.
Post-preferential issue, Rising Sun Holdings will become the promoters of Magma Fincorp and its subsidiaries, which all will be renamed as Poonawalla Finance.
The deal will make Adar Poonawalla the chairman of the board, and Abhay Bhutada, presently managing director and chief executive of Poonawalla Finance, will be the managing director of the merged entity.
Magma earlier this week had reported net sales of Rs 454.66 crore, down over 12% for the December quarter and a paltry Rs 1 crore net income down 80.5% from Rs 5.40 crore in December 2019. Shares of the company have given over 100% returns over the last six months.
Axis Capital and Deloitte Touche Tohmatsu are the merchant bankers to the open offer, while Economic Laws Practice, Khaitan & Co, Wadia Ghandy & Co and Vinod Kothari & Co are the legal advisors for the deal.