Dalal Street Investments

Shriram Transport buys loans from GE Capital Group

December 29, 2009

Shriram Transport Finance (STFC) has bought loan receivables from GE Capital Services India and GE Capital Financial Services for a consideration of about Rs11 bn. The book value of these loans is about Rs12 bn (loans backed by new CVs of about Rs9 bn and new construction equipment loans of about Rs3 bn), thereby implying a high yield of ~23-24% on the transaction for STFC (as against a coupon rate of 13-14% on new vehicle loans).

STFC will service the aforesaid loans as the originator plans to reduce its focus on CV finance business. STFC’s strong franchisee network of about 480 branches, assets of Rs260 bn, across the country will likely enable it to service the loans. According to the management, all the loans are current (non-delinquent) and have a balance maturity of about two years.

The transaction will imply faster disbursements and higher loan growth at STFC. The loan pool (Rs11 bn) is approximately equal to one month of STFC’s disbursements. STFC will earn a yield of ~23-24% on the transaction though the operating and credit costs may be somewhat higher than loans originated by STFC.


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