Proxy advisory firms back Shriram Finance resolution for stake dilution in favour of MUFG

Core Viewpoint - The extraordinary general meeting (EGM) on January 14 aims to approve a significant fund infusion of Rs 39,618 crore (approximately USD 4.4 billion) from MUFG Bank, which involves a 20% stake dilution through preferential share issuance [9][10]. Group 1: Resolutions and Proposals - The first two resolutions involve the preferential allotment of shares to MUFG Bank and the granting of special rights, requiring 75% of votes cast for approval [9]. - The third resolution pertains to a USD 200 million non-compete fee paid by MUFG Bank to the Shriram Ownership Trust (SOT), which is an ordinary resolution with promoters abstaining from voting [2][9]. Group 2: Advisory Opinions - ISS reported no known issues with the USD 200 million payment to SOT, stating it will be paid only after the completion of the preferential share issue, in line with the Investment Agreement [5][10]. - ISS highlighted that the non-compete fee is justified as it prevents promoters from entering competing businesses, with clear terms regarding its application and duration [6][10]. - InGovern recommended supporting the preferential issuance due to alignment with capital needs, fair pricing, and strong investor credentials, noting that the fee is proportionate to the investment size and protects Shriram Finance's core business [7][10]. Group 3: Market Reaction and Shareholding - As of September-end, foreign institutional investors (FIIs) held 49.61% and domestic institutional investors (DIIs) held 18.65% of shares, with promoters holding 25.39% and non-institutional public investors at 6.34% [8][10]. - The market has reacted positively to the MUFG investment, with the stock price increasing by 20% to Rs 1,010 per share from Rs 840.93 per share [8][10]. - Motilal Oswal Financial Services maintained a 'Buy' rating on Shriram Finance, setting a target price of Rs 1,100 based on a price-to-book value of two times the March 2028 estimate [9].