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Fairfax-backed IIFL Finance looks to sell stake in Housing Finance unit

Canadian billionaire Prem Watsa-backed Fairfax Group and the UK government’s development finance institution CDC Group plc are key investors in IIFL Finance, holding 22.3 percent stake and 7.7 percent stake, respectively. With over 2,563 branches, IIFL Finance and its subsidiaries, IIFL Home Finance Limited and Samasta Microfinance, are focussed on retail lending.

November 22, 2021 / 09:42 PM IST

IIFL Finance is preparing to divest stake in its subsidiary, affordable housing financier IIFL Home Finance, as it looks to unlock value, multiple industry sources with knowledge of the matter told Moneycontrol.

Canadian billionaire Prem Watsa-backed Fairfax Group and the UK government’s development finance institution CDC Group plc are key investors in the parent IIFL Finance, a retail-oriented non-banking financial company (NBFC), holding 22.3 percent stake and 7.7 percent stake, respectively.

“IIFL Finance wants to unlock value for shareholders and capture the true value of the business. Hence, it is weighing the sale of a minority stake in IIFL Home Finance and has appointed investment bank Avendus Capital as advisors for the proposed transaction,” said one of the persons cited above.

A second person familiar with the contours of the deal added, “The fund infusion discussions are at a very preliminary stage and the stake sale mandate has been given recently. They are looking to tap private equity funds as potential suitors.”

A third person also confirmed the stake sale plans. The quantum of the proposed capital raise could not be independently verified.

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All the three persons above spoke to Moneycontrol on the condition of anonymity.

Moneycontrol has sent an email query to IIFL Finance followed by reminders, but had not received a response from the company at the time of publishing this article. This article will be updated as soon as we hear from them.

A spokesperson for Avendus Capital said, “As a matter of policy, we do not respond to such queries.”

In an interview to Moneycontrol in May, IIFL Group Chairman Nirmal Jain said, “IIFL Finance strategy is two pronged—one, to focus on retail small-ticket loans delivered digitally and two, win-win partnerships with banks and fin-techs. To ensure superior customer service and asset quality, we have invested in our own branch network manned by our own employees.”

With over 2,563 branches, IIFL Finance and its subsidiaries, IIFL Home Finance Limited and Samasta Microfinance, are focussed on retail lending digitally. The product portfolio comprises home loans, gold loans, business loans including loan against property and unsecured MSME financing, microfinance, developer and construction finance and capital market finance.

Recently, Multiples-backed Vastu Housing Finance Corporation raised about $200 million from a consortium of Norwest Venture Partners, Creation Investments and IIFL Asset Management. The deal is the largest private equity growth investment in the affordable housing segment in India, the announcement said. True North, Warburg Pincus and Partners Group are examples of other private equity funds which have placed bets in housing finance firms.

IIFL HOME FINANCE: A CLOSER LOOK

IIFL Home Finance offers small-ticket loans for home purchase, renovation, construction and plot purchase to first time buyers and customers. Its ‘Swaraj’ home loans primarily cater to the housing needs of salaried, self-employed and professionals running micro-businesses across tier-I suburbs, tier-II and tier-III cities. The firm actively promotes the development of green affordable building in collaboration with housing developers and experts through the ‘Kutumb’ platform in a bid to reduce the carbon footprint and deliver cost-efficient structures.

It also promotes women empowerment facilitating Credit Linked Subsidy Scheme (CLSS) benefits under the Pradhan Mantri Awas Yojana – Urban (PMAY(U)). This scheme makes it mandatory to have at least one woman member registered as the owner/co-owner of the new home.

The firm’s AUM, as of March 31, 2021, stood at Rs 14, 440 crore with a growth of 16 percent Y-o-Y . The total disbursement during the year amounted to Rs 423 crore with the average ticket size of home loans reduced from Rs 30 lakh in FY16 to Rs 16 lakh in FY21.

HOUSING FINANCE SEGMENT: WHAT’S THE OUTLOOK?

The 2021 annual report of IIFL Finance says, “The affordable housing space exhibits the highest growth potential in the overall HFC (housing finance companies) portfolio. This can be accredited to the rising income levels and increasing financial penetration. SCBs (scheduled commercial banks) , along with HFCs (housing finance companies), are expected to cater the huge demand-supply gap in the affordable housing segment through co-lending.”

The report added, “On the demand side, the government’s motive to boost the real estate sector, driven by Pradhan Mantri Awas Yojana (Urban) (PMAY(U)) initiative is expected to provide good opportunities for HFCs.”

According to ICRA, the loan book for HFCs in the first nine months of FY21 moderated to 4.3 percent and is expected to achieve a growth rate of 6-8 percent in FY21 followed by an uptick of 8-10 percent growth in FY22 due to vaccination rollout and economic revival.
Ashwin Mohan
first published: Nov 22, 2021 09:33 pm

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