Fusion Finance increases rights issue size to Rs 800 crore

Right issue

Fusion Finance Ltd has increased the size of its upcoming rights issue to Rs 800 crore from Rs 550 crore, according to its exchange filing. This has been done during the ongoing stress in the company and the microfinance sector.

The company’s board approved the Rs 800-crore rights issue on December 4 to existing shareholders.

The exchange filing also said that the board also approved the draft letter of offer dated December 5, 2024 to be filed with the Securities and Exchange Board of India, BSE, and NSE for their requisite approvals.

The Board further approved that the company retains the flexibility and may at its sole discretion undertake a preferential issue of equity shares for an aggregate amount not exceeding 20 percent of the overall size of the rights issue, the exchange filing said.

On November 26, ratings agency ICRA downgraded ratings and outlook of Fusion Finance’s NCD programme and subordinate debt due to concerns over asset quality and profitability.

Fusion Finance announced its Q2/H1 FY2025 results on November 15, wherein it reported a higher-than-expected deterioration in its asset quality and profitability.

The company’s gross stage 3 assets increased to 9.4 percent as of September 2024 from 2.9 percent as of March 2024. Consequently, the earnings were adversely impacted, resulting in a net loss of Rs 341 crore in H1 FY2025 vis-à-vis a net profit of Rs 505 crore in FY2024.

The deterioration in the asset quality was attributed to various factors including, but not limited to, adverse climatic conditions, attrition at the field level, worsening of credit discipline and overleveraging of borrowers, ratings agency said in a release.

The agency further said that given the deterioration in the asset quality and profitability, Fusion was in breach of various financial covenants (in respect of borrowings amounting to Rs. 5,618 crore) as of September 30, 2024, thus making these borrowings repayable on demand. As a result, the statutory auditor highlighted material uncertainty regarding the company’s ability to continue as a going concern as the lenders had not waived their right to demand immediate repayment from the company.