Mumbai: The plan of General Electric Co. (GE) to sell the Indian unit of its consumer finance company GE Money Financial Services Ltd has run into rough weather.
Bidders, who have evinced interest in the firm, are finding the valuation sought for the unit “unrealistic” after carrying out the due diligence exercise on its assets.
Many Indian investors had expressed interest in GE Money’s consumer finance business, put on the block a few months back. Morgan Stanley has been GE Money’s adviser for this deal.
High price: GE Money has attracted a number of Indian investors, but are finding the valuation ‘unrealistic’ after due diligence on its assets.
“Around 40 investors have shown interest in the firm. The list includes the Anil Dhirubhai Ambani Group company Reliance Capital Ltd; Future Group of Kishore Biyani, India’s largest retailer; Indiabulls Financial Services Ltd; the Aditya Birla Group and the Tatas, but, none of them are finding the pricing reasonable,” said an investment banker, who didn’t want to be named.
“We walked away from the deal as the quality of assets has deteriorated further since the business has been put on the block. The firm does not have a strong collection mechanism,” said an official from a company that had looked at the books.
According to this official, GE Money has been asking for a premium of around $250 million (about Rs1,073 crore) over the book value of the assets. “We cannot pay this much as it is, after all, a distress sale,” said the same official.
GE Money spokesperson Archana Handa said, “We do not comment on market speculation and hence have nothing new to state with respect to the ongoing strategic review of our wholly owned personal loan and mortgage portfolios. However, we would like to reinforce that GE Money remains steadfastly committed to India as a market for growth and investment.”
GE Money has a loan portfolio of around Rs6,000 crore, spread over 4,500 outlets across 60 locations. Home loans account for 70-80% of the portfolio, while the rest consists of personal loans and loans to finance purchases of consumer durables and motor vehicles. An aggressive customer acquisition drive had led to the rising of the non-performing assets (NPAs) of the firm, but the actual quantum of NPAs is not known. Its net profit dipped to Rs10 crore for the year ended 31 March 2007 from Rs50 crore in the previous year. The net profit figure for 2008 is not known.
GE Money also distributes home loans through a joint venture (JV) with Wizard India. These assets have not been put on the block. Besides, its two JVs with State Bank of India — the country’s largest lender — SBI Cards and Payment Services Ltd and GE Capital Business Processes Management Services Ltd, will also continue to operate under its fold.
In May 2007, GE Money had exited the two-wheeler financing business, citing low margins and in November it had also got out of the consumer durables business. GE Money is not the only firm that is finding the going tough in the consumer finance business in India. Citigroup, too, has admitted rising NPAs in its consumer finance business and it has been pruning the portfolio.
According to rating agency Crisil Ltd, CitiFinancial, the consumer finance arm of Citibank in India, has witnessed a significant decline in its profits for the nine months ended 31 December. The decline has been largely due to higher delinquencies in the unsecured personal loan segment. The rating agency is maintaining a negative outlook on the company.
“Post the subprime crisis, valuations of most retail assets have taken a beating. In India, the banking sector saw the retail non-performing assets grow on account of the rising defaults on the small ticket personal loans, in the range of Rs10,000 to Rs20,000,” said a banking analyst with a foreign brokerage, who did not want to be named as his company policy does not allow him to be quoted in the media.
Crisil’s analysis indicates that NPAs across all retail assets have gone up and are likely to increase further in 2008-09.