Shares of Mahindra and Mahindra (M&M) rallied over 5% in opening trade on Friday, extending gains for the third straight session, after the homegrown auto major raised ₹1,925 crore for its proposed new subsidiary. The index heavyweight has gained 6.5% in the past three sessions and nearly 10% over a month, outperforming the BSE auto sector and S&P BSE Sensex.
In a late night filing on Thursday, M&M says the U.K.’s development finance institution British International Investment (BII) has entered into a deal to invest ₹1,925 crore (or $250 million) into a new subsidiary of M&M which will focus on four-wheel passenger electric vehicles. The auto giant, which aims to invest over $1 billion in EV business, has raised the fund at a valuation of up to ₹70,070 crore (or $9.1 billion). Both the companies have signed a binding agreement to invest in the new entity - “EV Co”.
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As per the release, BII will invest up to ₹1,925 crore in the form of compulsory convertible instruments, resulting in 2.75% to 4.76% ownership in the EV Co. The Mumbai-based company also informed that it has received its board approval to set up a wholly-owned subsidiary, EV Co, to undertake the four-wheel passenger electric vehicles business of the company.
“The company and British International Investment Plc (‘BII’) have today entered into a securities subscription agreement and shareholders’ agreement, whereby the company and BII have agreed to invest upto ₹1,925 crore each in EV Co, in two tranches subject to certain terms and conditions,” M&M says.
The first tranche of investment by the company and BII would be for an amount of up to ₹1,200 crore each. The second tranche of investment by the companies would be up to ₹725 crore each, which will be subject to the achievement of certain milestones to be agreed between the company, EV Co, and BII.
The fund will be utilised by EV Co to accelerate the growth of four-wheel passenger electric vehicles business and to create and market a world-class Electric SUV portfolio with advanced technologies.
According to the company, the assets of the four-wheel passenger electric vehicles business of M&M will be transferred to a new EV entity, which will be an integral part of the overall business of the company. BII as an investor will also help the company to leverage its focus and expertise in ESG and climate change.
Founded in 1948, BII (formerly CDC Group plc) is the development finance institution of the U.K. government and invests between £1.5 and £2 billion every year to support the government’s clean green initiative and to create productive, sustainable, and inclusive economies. Based in London, BII intends to invest at least 30% of its total new commitments by value in climate finance in the next five years.