Chennai: Magma Fincorp Ltd has agreed to buy GE Money Housing Finance and the home equity loan portfolio of GE Money Financial Services Pvt. Ltd for Rs.1,600 crore, marking the non-banking financial company’s (NBFC) entry into the affordable and middle-income housing finance sector.
“We are buying out the entire GE housing finance and mortgage loan business in an all-cash deal,” chief financial officer Lakshmi Narasimhan said. The acquisition will be funded through a mix of equity and debt. “Magma’s internal accruals should take care of the equity part of the funding and we have got a line of credit from our bankers,” Narasimhan said. “The structure is still being worked out.”
Magma Fincorp finances purchases of trucks, tractors, cars and construction equipment, besides providing loans to small- and mid-size enterprises.
With the twin acquisitions, Magma Fincorp, which is backed by KKR and Co. and the International Finance Corporation (IFC), will gain access to National Housing Bank’s (NHB) subsidized credit lines.
In 2011, KKR and IFC picked up 27.75% in Magma Fincorp for Rs.440 crore. KKR paid Rs.236.31 crore for a 14.95% stake, while IFC invested Rs.202.4 crore for a 12.8% stake.
Magma’s will now provide home loans ranging between Rs.15 lakh and Rs.20 lakh. The average loan size of GE’s housing finance is Rs.17 lakh.
For GE Capital India, the acquisition marks an exit from the mortgage lending business in the country. This decision is in line with the strategic realignment of our businesses globally, said Anish Shah, president and chief executive, GE Capital India. “It is also in line with a decision we had taken three years ago to exit from our mortgage loan business in India.”
GE Capital India will continue to focus on growing its commercial finance business and credit card joint venture in the country.
GE Money Housing Finance has loan assets of Rs.660 crore, while GE Money Financial Services has about Rs.940 crore, Magma said in a statement.
Experts say there is a sharp increase in interest for acquiring NBFCs, both as companies or specific portfolios, to plug gaps in offerings or to enter new locations. There is a strong appetite among Indian NBFCs to fulfil the pent-up demand in smaller cities that has not been met by the banks, said Vinod Wadhwani, director, Ambit Corporate Finance, an investment bank, which advised Magma on this acquisition.
Last month, L&T Finance Holdings Ltd, the NBFC of engineering firm Larsen and Toubro Ltd (L&T), acquired FamilyCredit Ltd, a subsidiary of France’s Société Générale Consumer Finance, for Rs.120 crore. It also completed the acquisition of Indo Pacific Housing Finance Ltd for Rs.110 crore.
Wadhwani said there would be more such acquisitions in the future. “NBFCs will continue to look out for synergistic acquisitions to build and grow in a steady and sustainable manner. These companies will look for targets that complement and supplement their strategy and outlook,” he said.
As much as 41% of India’s population is unbanked, the Reserve Bank of India estimates. NBFCs have emerged as an attractive alternative for investors seeking to put in money in domestic financial services. Indian law also limits any entity’s investment in a bank at 5%. Therefore, private equity firms are joining hands to set up NBFCs. For instance, the private equity arm of Goldman Sachs, Ashmore Group Plc and Everstone Capital have established Indostar Capital Finance Pvt. Ltd to lend to Indian firms.
Magma Fincorp shares rose 2.37% to Rs.67 on BSE Ltd on Thursday. The benchmark Sensex lost 0.3%.