Magma HDI General Insurance Company Ltd, the insurance JV of Magma Fincorp Ltd, has approved capital raise of up to ₹250 crore by way of preferential issue to third party investors. Pursuant to the above preferential allotment, the shareholding of the company will get reduced from the current 29.3 per cent to 24.2 per cent.

The fund-raising plan would be subject to requisite statutory and regulatory approvals.

As a part of the transaction, Magma HDI is looking to bring in funds managed by ICICI Venture and Morgan Stanley Private Equity Asia along with the Cyza Chem Pvt Ltd (a Poonawalla Group Company), and two family offices as new shareholders in the company. The transaction of ₹525 crore includes a primary capital raise of ₹250 crore.

“Fresh capital infusion of ₹250 crore will provide growth capital to meet the needs of the expanding distribution capabilities of the company. The secondary sale of ₹275 crore enables Magma Fincorp and its group companies in complying with the Reserve Bank of India’s guidelines for ownership of stake in insurance companies,” the company said in a press statement on Tuesday.

According to Rajive Kumaraswami, Managing Director & Chief Executive Officer, Magma HDI, the growth capital which the investors would bring on board would enable the company to expand the business and explore new opportunities.

“The insurance sector is poised to see exponential growth given the low penetration and the trigger of the pandemic which has led people to look at insurance as protection,” he said in the statement.

Referring to Magma HDI as a “young and fast-growing company”, Adar Poonawalla, Chief Executive Officer, Serum Institute of India, said that he was confident that it would reach its full potential in next few years.

“We are very excited with the ever-expanding opportunity in the BFSI space and with the capital infusion in Magma HDI by marquee investors and further increase by the Poonawalla group’s direct stake in the insurance arm, the company is well capitalised and poised for profitable growth and increasing its market share,” Abhay Bhutada, Managing Director & Chief Executive Officer, Poonawalla Finance, said.

Magma HDI has been clocking a CAGR of 45 per cent in the last three years. The company’s solvency stands at 1.81 times as on December 31, 2020, against the required regulatory solvency of 1.5 times. As of December 20, the investment book stands at a robust level of ₹2,881 crore.

Ambit Private Ltd is the exclusive financial advisor and Wadia Ghandy is the legal advisor to the transaction.