MC Exclusive | Warburg expected to lead troubled MFI Fusion Finance’s rights issue

Devesh Sachdev, CEO, Fusion Finance

Warburg Pincus is expected to take the lead in subscribing to Fusion Finance Ltd’s upcoming rights issue, set to launch next week, said sources familiar with the matter.

However, not all promoters are on the same page, with Chicago-based Creation Investments  hesitant to fully back the initiative.

Creation holds 19.78 percent stake in Fusion, making it a significant stakeholder, albeit behind Warburg Pincus, which held  32.83 percent stake as of December 2024.

While the exact reasons for Creation’s lukewarm stance remain unclear, the firm, a long-standing partner of Fusion’s, has scaled back its involvement in recent years.

Creation’s holding in Fusion declined from 23.63 percent following a 3.8 percent stake sale for Rs 213 crore via a block deal in December 2023.

Warburg, on the other hand, is likely to spearhead the rights issue, despite offloading stake worth over Rs 5,000 crore in other portfolio companies like Bharti Airtel, IDFC First Bank, and Computer Age Management Services (CAMS) in 2023. It garnered over Rs 5,000 crore via these stake sales.

Fusion Finance did not respond to the queries sent to them.

The rights issue comprises partly paid-up shares, with Rs 400 crore to be raised in the April tranche and the remaining amount to be collected over the next few quarters.

A successful rights issue for the company will be crucial to securing continued support from bankers, especially since it has been in financial strain for three consecutive quarters up to December 2024.

The Rs 800-crore rights issue, aimed at enhancing capital adequacy and strengthening the balance sheet, comes at a time when Fusion Finance has been under strain due to a downturn in India's microfinance sector.

Moneycontrol had earlier reported that MFIs are facing repayment issues because of overleveraged borrowers, and high attrition, which is causing operational difficulties.

On November 26, ratings agency ICRA downgraded the ratings and outlook of Fusion Finance’s NCD (non-convertible debenture) programme and subordinate debt due to concerns over asset quality and profitability.

Fusion Microfinance, which started 2024 with strong "buy" calls, now faces a mixed sentiment with only 10 percent "buy", 40 percent "hold", and 50 percent "sell" recommendations.

The MFI had reported a third consecutive quarter of losses in FY25 of Rs 719.31 crore against a loss of Rs 305 crore in the previous quarter, and a profit of Rs 126.45 crore in the year-ago period.

During Q2 FY25, it reported a higher-than-expected deterioration in its asset quality and profitability. The deterioration in the asset quality was attributed to various factors including adverse climatic conditions, attrition at the field level, worsening credit discipline, and overleveraged borrowers, the ratings agency ICRA Ltd had said in a release.