Magma Fincorp will pare its shareholding in insurance venture Magma HDI by selling stake to ICICI Venture, Morgan Stanley PE, a Poonawalla Group firm and other entities in a Rs 525 crore-deal.

Magma HDI is a joint venture between Magma Fincorp and Germany's HDI Global SE. Since early February, Adar Poonawalla-controlled Rising Sun Holdings — an arm of Poonawalla Finance — owns 60 per cent in Magma Fincorp.

The present deal involves ICICI Venture, Morgan Stanley Private Equity Asia and Cyza Chem — a Poonawalla Group company — and two family offices as new shareholders bringing in Rs 525 crore. Out of the total amount, Rs 250 crore will be primary capital, Magma HDI said in a statement on Tuesday.

The deal will also enable Magma Fincorp and its group companies to bring down its direct shareholding in the insurance venture to 50 per cent as per RBI guidelines.

RBI norms cap an NBFC's direct holding in insurance ventures at 50 per cent. Magma Fincorp is an NBFC.

Magma Fincorp sold 9.9 per cent stake in Magma HDI to Serum Institute of India, a Poonawalla Group firm, in March 2019. Now, Magma owns 66.79 per cent stake in the insurance venture and HDI has 26 per cent.

Following the latest Rs 525 crore-transaction, the Poonawalla Group will become the main promoter with around 30 per cent direct and indirect stake in Magma HDI while HDI will be the single largest shareholder with 17.1 per cent stake. HDI's remaining stake will be offloaded through a secondary sale.

ICICI Venture will become the third largest shareholder with 16.7 per cent in Magma HDI.

Rajive Kumaraswami, Managing Director and Chief Executive of Magma HDI, told that post the deal, Magma Fincorp and other promoters will have 50 per cent stake in the insurance company.

"ICICI Venture is making the biggest fund infusion of Rs 240 crore, of which Rs 156 crore is fresh capital and Rs 83.4 crore is part of the secondary sale, giving 16.7 per cent stake.

"Morgan Stanley is infusing Rs 143 crore, of which Rs 93 crore is fresh capital and Rs 49 core is part of the secondary sale, giving it 9.9 per cent control, and the Poonawalla firm Cyza Chem is bringing in Rs 84 crore through the secondary sale of equity, giving it an additional 5.9 per cent stake.

"Already it owns around 15 per cent by virtue of owning 60 per cent of Magma Fincorp, which will continue to own 24.2 per cent in the insurer," Kumaraswami said.

Post-deal, Magma Fincorp, Poonawala Group, and other Magma entities through an SPV called Jaguar, and family offices of the Havels Group and Atul Nisar of Hexaware Technologies (who will equally split the remaining Rs 57 crore) will collectively own 50 per cent.

Of this, 5.89 per cent will be held by Cyza Chem and Magma group promoter Sanjay Sanjay Chamria will own 13.3 per cent, he said, adding the Serum Institute's 9.9 per cent stake will come down to 8 per cent post deal.

The transaction is subject to shareholder and regulatory approvals, including from the insurance regulator Irdai and the Competition Commission, the company said.

Adar Poonawalla, chief executive of Serum Institute and chairman of its finance arm, said, "We are delighted to continue our support as shareholders of Magma HDI and I see huge potential in the growth of Magma HDI which is a young and fast growing company. We are confident that it can reach its full potential in next few years."

Abhay Bhutada, managing director of Poonawalla Finance and who will also head Magma Fincorp, said this capital infusion will further increase the Poonawalla group's direct stake in the insurance arm.

Puneet Nanda, managing director & chief executive of ICICI Venture, said, they are excited about the prospects offered by the under-penetrated insurance sector.

Nirav Mehta, managing director of Morgan Stanley PE Asia, said, "the Indian general insurance sector is poised for a structural growth phase, and Magma HDI is well-placed to tap this opportunity."

Magma HDI has been one of the fastest growing non-life player clipping at 45 per cent per annum in the past three years.

For the first nine months of the fiscal, it had net income of Rs 22.3 crore on a gross written premium of Rs 911.2 crore, compared to Rs 7.3 crore net income on premium income of Rs 948.5 crore a year go.

Magma HDI has 133 branches, with over 1,000 employees and has serviced over 40 lakh customers till date.

Ambit Capital was the sole financial advisor and Wadia Ghandy was the legal advisor to the transaction.