RBI asks Warburg Pincus to reduce stake in Home First Finance before Shriram Housing deal: Report

With final regulatory approval reportedly secured last week, Shriram Finance now awaits Warburg Pincus’s partial divestment in Home First Finance to complete the sale.

The Reserve Bank of India (RBI) has directed private equity giant Warburg Pincus to lower its stake in mortgage lender Home First Finance from 23 percent to 20 percent or below before proceeding with the proposed acquisition of Shriram Housing Finance, business daily Mint reported, citing sources involved in the transaction.

“Warburg has to divest 3 percent of their stake in Home First; they currently hold around 23 percent. The regulator has requested that it be reduced to 20 percent or less because these are competing housing finance companies (HFCs)," a source told Mint. They also noted that Warburg Pincus is actively seeking potential buyers to meet the regulatory condition.

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Another insider added that the RBI is in early discussions with all stakeholders to finalise the structure and ownership transfer involved in the transaction.

Both Shriram Housing Finance and Home First Finance are non-bank lenders with a focus on affordable housing. Shares of Home First Finance are publicly traded, while Shriram Housing Finance remains unlisted.

Shriram Finance initially announced the sale of Shriram Housing Finance to Warburg Pincus's affiliate, Mango Crest Investment, in May 2024. The deal, valued at approximately Rs 4,630 crore, includes equity and convertible instruments in the housing finance subsidiary. Shriram Finance currently controls Shriram Housing, with private equity firm Valiant Partners LP (Mauritius) holding the remaining stake. As part of the deal, Valiant will also sell its entire stake to Warburg Pincus.

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With final regulatory approval reportedly secured last week, Shriram Finance now awaits Warburg Pincus’s partial divestment in Home First Finance to complete the sale. “We have received approvals from all regulatory authorities for divesting our stake in Shriram Housing Finance Limited, subject to compliance with certain conditions specified. We expect to complete the transaction before the end of December 2024," a Shriram Finance spokesperson stated.

Warburg Pincus initially acquired its stake in Home First Finance in October 2020 through an affiliate, Orange Clove Investments BV, in a Rs 700 crore fundraising round that included primary and secondary transactions. The deal brought Warburg Pincus alongside other private equity shareholders, True North and Bessemer Venture Partners, resulting in Warburg’s current 22.9 percent holding.

Home First Finance declined to comment on the developments, as per Mint, and inquiries to Shriram Finance, the RBI, and Warburg Pincus went unanswered at the time of publication. Moneycontrol could not independently verify the report.