dmi: Japan’s MUFG set to buy into DMI Finance with $230 mn investment

Japan’s largest lender Mitsubishi UFJ Financial Group (MUFG) is in advanced talks to acquire 20% in New Delhi-based shadow bank DMI Finance by investing $230-240 million, said people aware of the matter. A formal announcement is expected as early as today.

MUFG is also negotiating an option to buy an additional 10% stake in the 14-year-old finance company that was started by former Citi bankers. The Burman family of Dabur, Sumitomo Mitsui Trust Bank New Investment Solutions, the largest shareholder, and NXC Corp are the other existing backers of the firm that operates in consumer lending, asset management and affordable housing finance segments. Sumitomo Mitsui Trust Bank may raise its stake marginally, said one of the persons.

Japan’s MUFG may Buy 20% in DMI Fin.

The investment is seen as part of a larger fundraising exercise that may see a secondary round later.

MUFG India’s spokesperson was unavailable for comment. Shivashish Chatterjee, DMI’s cofounder and joint MD, didn’t respond to queries. The two cofounders, the second being Yuvraja C Singh, own 10-12% of the company.

Incorporated in 2008, DMI is registered as a non-banking finance company (NBFC) with the Reserve Bank of India (RBI). While it was mainly engaged in secured corporate lending – largely to real estate builders – till a few years ago, it has shifted focus to digital lending, providing consumer, personal and micro, small and medium enterprise (MSME) loans. It’s a digital technology-driven business with API-based origination, underwriting and loan management systems.

DMI predominantly works through frontend partnerships with other fintech companies, original equipment manufacturers (OEMs) and technology-driven aggregators. On March 31, 2022, retail loans accounted for 62% of the Rs 5,432-crore loan book with the wholesale real estate lending book accounting for 38%. Within the retail book, personal loans account for 42%, consumer loans for 51% and MSME loans for the rest.

While reaffirming its credit rating last September, ICRA said its action was based on DMI Group’s consistent track record of strong capitalisation, aided by regular equity infusions by the promoter, i.e. DMI Ltd, Mauritius, and other external investors.

“Following the equity infusion of about Rs 2,950 crore during the six-year period ending March 2022, the group’s consolidated net worth stood at about Rs 4,479 crore with a gearing of 0.7x as on March 31, 2022,” it said. “Moreover, ICRA notes that the group plans to maintain prudent capitalisation with a peak gearing of 2-3x over the longer term. The ratings also draw comfort from the group’s track record of strong liquidity supported by low leverage and sizable on-balance sheet liquidity. Moreover, a considerable portion of the loan book has a residual tenor of up to one year, which supports the overall liquidity profile. The available on-balance sheet liquidity of about Rs 1,545 crore as on March 31, 2022.”

MUFG has been expanding its offerings beyond wholesale lending, project finance and bond issuances as well as promoter and M&A financing. It launched a $300 million Ganesha Fund to back startups, on the lines of a similar Garuda Fund in Indonesia. It has already backed DotPe, a fintech firm, from the Ganesha Fund in 2022.

The Japanese bank has a global network with approximately 2,400 locations in more than 50 markets. The group has about 170,000 employees and offers services such as commercial banking, trust banking, securities, credit cards, consumer finance, asset management, and leasing with a footprint in 20 markets in Asia and New Zealand.

MUFG owns about 20% of Wall Street bank Morgan Stanley. In 2020, the Japanese financial powerhouse invested $726 million ( yes) in Singapore-based ride-hailing company Grab as part of a capital and business alliance. MUFG Bank and Grab have jointly developed a smartphone app-based loan and insurance business for Southeast Asia. MUFG has followed an aggressive overseas strategy, making large bets in Southeast Asian banks as Japan faces a demographic decline and ultra-low interest rates. It spent more than $14 billion to buy 94.1% of PT Bank Danamon Indonesia Tbk, 76.9% of Bank of Ayudhya, 20% of Security Bank Corp of the Philippines and 19.7% of Vietnam’s VietinBank.


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