43916 - SHTF Sec II

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Summary of Investment Information

Project Number

43916

Company Name

SHTF SEC II SPV

Date SPI Disclosed

Apr 7, 2022

Country

India

Region

South Asia

Projected Board Date

May 7, 2022

Environmental Category

FI-2 - Limited

Status

Completed

Last Updated Date

Jan 19, 2025

Department

Regional Industry - FIG Asia & Pac

Industry

Financial Markets

Previous Events

Approved : May 19, 2022
Signed : May 31, 2022
Invested : Jun 10, 2022

Sector

Finance Companies - Consumer Finance

Project Description

The proposed project envisages a rupee denominated investment into securitized assets of Shriram Transport Finance Company Limited (SHTF) through Pass Through Certificates (PTCs) of up to USD 300 million equivalent (of which up to USD150 million will be through IFC’s own account and remaining through mobilization). The proposed project supports vehicle financing for micro, small and medium enterprises (MSME), particularly the micro segment, with a focus on the low-income states (LIS) and rural regions of India. The Covid-19 pandemic has aggravated the already weak economic environment for this segment since they are less resilient to exogenous shocks. Thus, this investment is part of IFC’s systematic effort to infuse confidence back into the market through innovative capital market instruments such as securitizations. These instruments will provide liquidity to the extremely important MSME segment through NBFCs, and enable resilient business recovery.

Associated Advisory Engagement

Sponsor / Cost / Location

Product Line	IFC Investment (million USD)
Risk Management
Guarantee
Loan	149.15
Equity

IFC's loan to the financial institution described in this SII is targeted for on-lending to the following sector(s):

Product Type	Use of Proceeds
Quasi-Equity	Loans to MSME (mix of Micro and SME)

IFC's Definitions of Targeted Sectors can be found here.

Development Impact

Stakeholders impact: Improved access to finance for MSMEs in the transportation sector: The MSME sector is extremely critical for the development of the country as it accounts for over 30% of the GDP and provides employment to more than 110mn people. The Covid-19 pandemic has aggravated the already weak economic environment for the MSME sector, and continuing to provide access to finance to MSMEs will be crucial to ensure their sustained recovery from the pandemic. The proposed investment would support access to finance to MSMEs, particularly micro enterprises, for purchasing commercial vehicles, focusing on MSMEs in underserved areas like low-income states and rural regions of India. Market impact: Beyond the project level outcomes, IFC anticipates the investment to promote greater resilience in the market via innovation, demonstration, and replication channels. This project will signal confidence in financing MSMEs, and support an increase in financing to MSMEs, especially micro-enterprises. The project also supports integration of the securitization market in India, by attracting long term capital from institutional investors.

IFC will provide both financial and non-financial additionality through this project. Financial additionality will be provided in the form of: (i) Innovative financing structure for the securitization and (ii) Resource mobilization, derived from mobilization of additional funding from an institutional investor. With respect to non-financial additionality, IFC will help in terms of: (i) Non-commercial risk mitigation. IFC’s role as an anchor in this transaction will be a vote of confidence in SHTF, providing comfort to other institutional investors.

E&S Category Rationale / Risks and Mitigation

The project entails a rupee denominated investment into securitized assets of Shriram Transport Finance Company Limited (SHTF). The objective is to support commercial vehicle financing for Micro, Small and Medium Enterprises with focus on the low-income states of India. Given the nature of the company's operations which is engaged primarily in pre-owned commercial vehicle financing, the level of E&S risks is considered as medium-low. Hence, the project is categorized as Category FI-2 in accordance with IFC's Environmental and Social Sustainability Policy. The main E&S risks and impacts of the project derive from SHTF's lending and financing activities, its labor and working condition practices across the company and its capacity and procedures in place to manage these risks. The project will not support coal-related activities and higher risk business activities that may involve a) involuntary resettlement, b) risk of adverse impacts on Indigenous Peoples, c) significant risks to or impacts on the environment, community health and safety, biodiversity, cultural heritage, or d) significant Occupational Health and Safety risks. For this investment, the E&S requirements will include the IFC Exclusion List and national E&S laws, and regulations related to emission standards for vehicles. As part of the Project, the SHTF will be required to: (i) continue implementing its Environment and Social Management System (ESMS) procedures; (ii) remain committed to applying the labor standards established by IFC Performance Standard 2 (PS2); and (iii) submit a periodic report to IFC.

SHTF is an existing client with a satisfactory ESMS in place and an E&S officer responsible for implementing the ESMS. The level of ESMS implementation is adequate for the E&S risk associated. The ESMS details the policy, and procedures, to be followed for all transactions where applicable. The current ESMS will be applied to the proposed IFC project as well. The human resource policies and procedures of SHTF are in line with IFC's requirements under PS2: Labor and Working Conditions and company follows the applicable Life and Fire Safety requirements.

Contacts

For Inquiries About the Project, Contact

Shriram Transport Finance Company Limited
Sandeep Balagopalan
DGM – Corporate Finance and Treasury
Fax: +91 22 40959596
sandeep@stfc.in
G Block, BKC, Bandra East, Mumbai 400051, Maharashtra, India
https://www.stfc.in/

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