Kirloskar Oil Engines Limited (KOEL) announced board approval for a Shareholders’ Agreement (SHA) concerning TPG’s investment in its step-down subsidiary, Arka Fincap Limited (AFL). The agreement outlines the inter-se rights and obligations of KOEL, its subsidiaries, and TPG/Investor as shareholders of AFL. This move is part of TPG’s proposed investment to accelerate Arka’s growth in the secured retail lending sector.
Board Approves Strategic Investment Deal
Kirloskar Oil Engines Limited (KOEL) has received board approval for the execution of a Shareholders’ Agreement (SHA) related to TPG’s proposed investment in its step-down subsidiary, Arka Fincap Limited (AFL). This agreement is crucial for defining the rights and obligations among KOEL, its subsidiaries Arka Financial Holdings Private Limited (AFHPL), AFL, and the investor, TPG SG Arca Pte. Ltd. (TPG/Investor), as shareholders of AFL.
Investment Details and Rationale
The SHA formalizes the terms for TPG’s investment, which aims to support Arka Fincap’s ambition to build a scaled, diversified, and secured retail-led financial institution. Arka Fincap, a non-banking financial company (NBFC) within the Kirloskar Group, currently manages approximately INR 8,000 crore in assets. TPG’s investment, comprising an initial INR 525 crore with a potential additional INR 275 crore, will accelerate Arka’s growth, enhance its geographical reach, and bolster its technology and risk management capabilities.
Shareholding Changes
Following the investment, KOEL’s effective shareholding in AFL is expected to reduce. Currently, KOEL holds 100% in AFHPL, which in turn holds 90.279% of AFL. Post the first tranche of TPG’s investment, KOEL’s effective holding will stand at 68.587% on a fully diluted basis, decreasing further to 62.607% after the second tranche.
Impact and Governance
The SHA includes customary provisions for governance, minority protection rights, and exit rights. Importantly, the agreement does not impact the management or control of KOEL itself. The company has also undertaken customary restrictions on the transfer of its shareholding in AFL and agreed that the group’s NBFC lending business will operate exclusively through AFL.
Transaction Overview
The investment is structured as a securities subscription agreement between AFL and the Investor. The first tranche involves the issuance of 100 equity shares and 32,53,45,231 compulsorily convertible preference shares for a consideration of INR 525,00,00,003. The second tranche involves 12,93,34,496 compulsorily convertible preference shares for INR 275,00,00,588, contingent upon business milestones and regulatory approvals.
Parties Involved
The key parties to the SHA are Kirloskar Oil Engines Limited, Arka Fincap Limited (a step-down subsidiary of KOEL), Arka Financial Holdings Private Limited (a wholly owned subsidiary of KOEL), and TPG SG Arca Pte. Ltd. (TPG/Investor).
Source: BSE
