S&P Global Ratings has upgraded Shriram Finance’s long-term issuer credit rating to ‘BBB-‘ from ‘BB+’, and short-term rating to ‘A-3’ from ‘B’, following a significant US$4.4 billion investment from MUFG Bank Ltd. The outlook is stable. The upgrade reflects expectations of stronger capitalization and benefits from Shriram’s robust market position in vehicle financing. The investment by MUFG will result in a 20% equity stake.
Rating Upgrade Details
S&P Global Ratings raised its long-term issuer credit rating on Shriram Finance Ltd. to ‘BBB-‘ from ‘BB+’. The short-term issuer credit rating was also raised to ‘A-3’ from ‘B’. The outlook on the long-term rating is stable.
The issue rating on the company’s senior secured debt was also raised to ‘BBB-‘ from ‘BB+’.
Rationale for Upgrade
The upgrade is driven by the expectation of stronger capitalization following a US$4.4 billion capital infusion from MUFG Bank, resulting in a 20% stake in Shriram Finance.
Expected Benefits
The company’s risk-adjusted capital (RAC) ratio is expected to exceed 20% over fiscal years 2027 and 2028.
The transaction will provide Shriram Finance with substantial growth capital for the next three to four years, with loan growth expected to remain at 18%-20% per year over the next two years. The Tier-1 capital ratio is expected to be 33%-34% after the transaction.
Operational Strategy
Shriram Finance’s business strategy is likely to remain largely unchanged after MUFG Bank’s onboarding, with MUFG having the right to appoint two nominee directors on the board.
Potential synergistic benefits from the transaction include enhanced capital market access, such as Samurai bonds, cheaper cost liabilities, treasury solutions, compliance, and digital initiatives. The potential reduction in funding costs could enable Shriram Finance to expand its customer base and enhance customer retention through more competitive pricing. The cost of borrowing is projected to fall 10-30 basis points over the next two years. The stable outlook reflects expectations that Shriram Finance will benefit from its robust capitalization and strong market position in vehicle financing, and anticipate gradual funding benefits from its association with MUFG Bank. Source: BSE
