Mumbai: The Overseas Private Investment Corporation (Opic), a US agency that helps American companies invest abroad and promotes the development of emerging markets, will lend $80 million (Rs382.4 crore) to Repco Home Finance Ltd (RHFL), an executive at the company said.
Opic will give the Chennai-based housing finance company a 23-year loan in two portions, $30 million and $50 million, subject to clearance from the Reserve Bank of India (RBI), RHFL managing director M. Balasubramanian said in a telephone interview on Wednesday. “We also have an informal commitment from the US agency for additional $50 million for our microfinance arm,” he added.
Opic’s first investment in India was a loan to Dabhol Power Co., promoted by Enron Corp. in 1996. The project, located in Maharashtra, was controversial from the start; the new state government that took over shortly after the deal was signed said the terms favoured Enron and wanted to renegotiate the contract. Then, Enron went bust.
The project was eventually taken over by state-owned power utilities and domestic lenders that settled with Opic.
The loan to Repco marks Opic’s first to any finance company in India.
The US agency has announced the transaction on its website. Queries mailed to it on on Thursday, before the US opened for business, had not been responded to till late in the evening India time (early Thursday US time).
On the website, Opic said the purpose of the loan is to create access to affordable homes to low- and middle-income families that have been traditionally underserved by major banks.
RHFL was promoted in 2001 by Repco Bank which, in turn, was promoted in 1969 jointly by the Union government (41%), the governments of four southern states (10%) and individuals (49%).
The bank was promoted to offer homes and employment to people of Indian origin who returned to India from Sri Lanka and Myanmar. Under an agreement, India had agreed to take back 500,000 families from Sri Lanka and 320,000 families from Myanmar. Repco provided employment to these people, allotted land to them and built 700,000 homes, Balasubramanian said. “From 1984, we have been working like any other commercial bank,” he added.
The Carlyle Group, one of the world’s largest private equity firms, acquired a 14% stake in RHFL in December 2007 and increased this to 46% in April 2009 by converting preference shares into equity. Balasubramanian did not disclose the conversion price.
The loan from Opic will provide RHFL with low-cost funds. “It is a challenge for a small bank like us to raise cheaper long-term deposits through debentures and bonds,” said Balasubramanian.
He added that Carlyle had facilitated the loan and that the cost of these funds effectively works out to 6.25%. “The new loan (from Opic) will allow us to offer longer-tenure loans to customers.”
Manoj Singh, global managing partner of operations at Deloitte Touche Tohmatsu, a global audit and consulting firm, said the Opic loan is an indication of the growth potential of the country’s housing market. Singh is also a member of the US India Business Council, an agency that aims to increase trade and economic partnerships between the two countries.
Under the terms of the agreement with Opic, all mortgages arising from its loan will be assigned to Opic, said Balasubramanian.