India’s Mahindra Finance acquires Sri Lanka’s Ideal Finance for Rs.2bn

ECONOMYNEXT – India’s Mahindra Finance has invested 2 billion rupees in equity in Sri Lanka’s capital short Ideal Finance Limited to acquire a 58.2 percent stake, officials said.

"We are going to create a NBFI (non-banking financial institution) which is going to be a benchmark, an ‘Ideal’ company, which reaches millions of Sri Lankans, in both urban and non-urban sectors," Mahindra Finance Senior Vice President Marketing and Strategy R. Balaji said.
 
"We will focus on vehicle leasing and financing small and medium scale enterprises," he said.
 
Speaking to reporters in Colombo, he said that Mahindra Finance will invest the equity in three tranches up to 2021, with an initial investment of 700 million rupees.
 
"The first tranche will account for not only the regulatory investment for this year but also for next year," Balaji said.
 
The central bank had restricted Ideal Finance to total deposits of 700 million rupees as the firm had failed to meet a 1.5 billion rupee capital requirement on January 2019.
 
The firm has a capital base of around 1.25 billion.
 
In January 2020 NBFIs have to reach 2 billion rupees in capital and have a minimum 2.5 billion rupees by January 2021.
 
The central bank has been tightening regulations in the finance sector to force mergers among the 43 firms in business.
 
Ideal Finance Chairman Nalin Welgama said that the firm was not able to meet the regulatory capital requirements as it was in talks with Mahindra before January 2019.
 
"We were in talks for a long period of time. Mahindra’s mergers and acquisitions department wanted to dot all the i’s and cross all the t’s ," he said.
 
"The central bank was aware of it and patient with us, which is why they did not take any drastic action."
 
He said that with NBFIs facing pressures and economic growth slowing down, the entry of Mahindra Finance gives a strong signal.
 
Around 70 percent of the firm’s assets are in vehicle leasing, while around 6 percent are in real estate, which ratings agency Fitch said it was concerned about.
 
"We will wind down our assets in real estate. We have no real estate lending in India," Balaji said.
 
Mahindra Finance has 10 billion US dollars in assets under management with operations in India and US focusing mainly on vehicle leasing.
 
Ideal Finance was started in 2012 to support the Ideal Motors Group which sells cars.
 
On Saturday, Ideal and Mahindra began assembling vehicles in Sri Lanka under a joint venture.
 
The Ideal Group has a 10-year relationship with Mahindra, being the agent for the Indian vehicle manufacturer in Sri Lanka.