Shares of Shriram Finance were shooting up on Wednesday as bidding war for its home loan unit was reportedly nearing a result.

What Happened: Warburg Pincus appears to be inching closer to securing Shriram Housing Finance, positioning itself as the leading contender to acquire the unit of Chennai-based non-banking finance company Shriram Finance, Economic Times reported, citing sources.

In a tightly contested competition, Bain Capital is also seen as a serious contender. Binding bids were submitted last week, sources told the business daily.

Negotiations are said to be underway with both parties seeking to maximise value. However, at present, Warburg seems to be the more assertive suitor or bidder for the company, according to the sources.

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Sticking Point: The potential sale is likely contingent on valuation discussions. While Shriram values it at ₹6,500 crore, including a control premium, offers have hovered in the range of ₹5,300-5,500 crore.

Shriram Finance, primarily engaged in commercial vehicle financing, holds an 84.82% stake in the housing loan unit, which focuses on affordable homes.

San Francisco-based PE Valiant Capital Management holds the majority of the remaining stake. The company revived plans to sell the unit late in 2023, appointing Avendus, Barclays and JM Financial as advisers.

This decision followed unsuccessful negotiations with private equity firms to sell a minority stake of approximately 15-20% for growth capital. Subsequent discussions with suitors like EQT also fell through.

PE firms CVC, Advent, Bain and Warburg were reported to be evaluating the deal.

Industry veterans believe it’s an opportune moment for Shriram Finance to divest its stake, given the substantial growth it has witnessed in recent years, leading to favourable valuations.

Price Action: Shriram Finance’s share price was up 1.65% at ₹2,506.55 in morning trade on Wednesday.

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