(From left) Shrachi Infrastructure MD Ravi Todi with Magma Leasing chief Sanjay Chamria in Calcutta on Friday. Picture by Kishor Roy Chowdhury

Calcutta, Aug. 25: The boards of Magma Leasing and Shrachi Infrastructure Finance today approved a merger of the two retail finance companies into a single entity, to be called Magma Shrachi Finance.

The boards of the two companies have also approved a stock swap ratio of one Magma Leasing share for every three shares of Shrachi Infrastructure Finance.

“Since it is a merger of two businesses, it involves no cash transaction,” said Magma Leasing promoter-director Sanjay Chamria, who is also the managing director of the company. “The cash reserves of the two companies will be optimised for the growth of the business,” he added.

The merger will have retrospective effect from April 1 this year, subject to regulatory approvals.

According to the agreement, there will be a three-year lock-in investment for Shrachi Infrastructure, followed by another three years of non-compete lock-in period.

“For the non-compete lock-in period, we will pay Shrachi Infrastructure a fee in the form of 3,29,000 equity shares,” Chamria said.

Post-merger, the equity share capital of the company will be Rs 20.09 crore, Chamria added. Of this, the promoters — Magma Leasing and Shrachi Infrastructure — will jointly hold 51 per cent, with Magma holding 42.8 per cent stake and Shrachi Infrastructure 8.2 per cent (including those 3,29,000 shares).

The board of the new entity will continue to be dominated by Magma Leasing directors, Chamria added.

“However, S.K. Todi and Ravi Todi from Shrachi Infrastructure Finance will join the board of Magma Shrachi Finance as vice-chairman and executive director, respectively. Shrachi Infrastructure Finance will continue to be a promoter in the new company,” Chamria said.

As of now, Magma Leasing has an equity base of Rs 16.93 crore and Shrachi Infrastructure of Rs 3.16 crore.

Overseas investors will account for 21.3 per cent of the equity capital of Magma Shrachi Finance, with Cambridge Place Investment Management — a private equity investment company — holding a 12.4 per cent stake.

“We bought a 14.99 per cent stake in Magma Leasing in August this year at a share price of Rs 180,” said Neil Brown, the representative director of Cambridge Place on the board of Magma Leasing.

“This is our first investment in a company in India. We are eager to buy into other companies, too. But we would prefer to invest in infrastructure finance companies,” Brown said.

However, Cambridge Place’s stake holding in the new entity will come down to 12.4 per cent, said Chamria.

Mark Faber Investment Company holds a stake in Magma Leasing through its two India-dedicated funds — India Institutional Investment Fund and India Capital Fund.

“Mark Faber Investment’s holding in the merged entity will be between 7 and 8 per cent,” Chamria said.

The remaining 27.7 per cent share in Magma Shrachi Finance will be held by public and domestic financial institutions.

Magma’s asset base as on March 31 this year stood at Rs 3,330 crore and that of Shrachi Infrastructure at Rs 1,250 crore. The two companies had disbursed Rs 1,820 crore and Rs 700 crore, respectively, in the last financial year. Magma Leasing posted an after-tax profit of Rs 20.17 crore for 2005-06, while Shrachi clocked an earning of Rs 5.91 crore.

“For the first quarter of the current financial year, Magma’s before-tax profit stood at Rs 11.04 crore and that of Shrachi Infrastructure at Rs 1.8 crore,” Chamria said.