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KKR step up rural play with Magma stake hike

Global PE firm raises stake in rural-focused NBFC to 16.8%, while Indium V and LeapFrog take Rs 220 crore and Rs 200 crore stakes to benefit from the government's financial inclusion plan

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Magma Fincorp, the non-banking player with a strong presence in the rural markets, has raised Rs 500 crore from a clutch of private equity investors including Kohlberg Kravis Roberts or KKR, Indium V and LeapFrog Investments.

With this, KKR has taken its combined stake held through several affiliates to around 16.8%.

Indium and LeapFrog are the new investors in the company, who will invest Rs 220 crore and Rs 200 crore respectively while Rs 80 crore is being pumped in by KKR affiliate Zend Mauritius VC Investments.

With this, Zend, which has been holding 14.11% stake in Magma till now, will raise its stake to 14.53% while another affiliate KKR Mauritius Direct Investments I Ltd continues to hold 1.55% in the post diluted capital taking KKR's total stake to 16.08%.

KKR, in fact, has been an investor into Magma since 2011, when it became the first foreign institutional investor in the country to apply to Competition Commission of India as it wanted to take up additional stake from the market.

Magma will issue 4.63 crore equity shares at a price of Rs 108 per share against Monday's closing price of Rs 93 to these investors.

This time, fresh investments by KKR as well as the new entrants are banking on the revival in India's rural economy with an added feel-good factor of financial inclusion and social impact.

Magma operates chiefly is those small towns and villages where a chunk of the population still remains unbanked.

With more than Rs 19,500 crore worth of assets under management, Magma prefers to finance customers for tractor, used assets, mortgage and SME loans who do not have adequate documentation, credit history and hence are perceived as a high-risk category by the banking channels.

"We are not contemplating entering into new business areas but would utilise the fund raised to strengthen our position to cash in on the rival," Atul Bansal, chief financial officer of Magma, told dna.

The NBFC, owned by Poddar and Chamria families, currently operates through 240 branches across the country.

Magma, which had earlier applied for a banking licence and recently exited gold loan business after a not-so pleasant experience, does not contemplate revisiting these businesses again, Bansal said.

"The Indian rural population wants to grow and that's where Magma has been working for the past two and half decades. The proposed investments will provide the company with strategic capital and will enable the company to expand its footprint deeper into these untapped markets, thereby contributing to financial inclusion in India, said Michael Fernandes, partner at LeapFrog, in a statement.

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