Home >Market >Stock-market-news >Indiabulls Housing declines 17% on OakNorth Bank deal

Mumbai: Indiabulls Housing Finance Ltd, which acquired a 40% stake in UK’s OakNorth Bank Ltd for $100 million, will use the investment to build credibility as a deposit-taking franchise, the company said on Friday, as investors upset over the transaction hammered its stock.

Indiabulls Housing Finance hopes the deal will strengthen its case for securing a deposit-taking licence from the Reserve Bank of India (RBI), vice chairman and managing director Gagan Banga said. The company has no interest in a full banking licence and is only looking to diversify its liability franchise, he said.

“The effect that we hope to achieve is that by becoming the largest shareholder in a deposit-taking franchise in the UK, which is a strongly regulated market, we would be able to back to the RBI and build a case for a deposit taking licence in the domestic market," Banga said.

Indiabulls Housing announced the purchase of the stake in OakNorth Bank, a digitally focussed bank that targets the small business segment in the UK, on Wednesday when the stock markets were closed for Diwali.

Investors concerned over the diversification into an unrelated business responded on Friday, when the market reopened after a two-day holiday, by hammering the stock down as much as 17% in intra-day trading. The stock touched a low of Rs592.30, a level last seen on 29 June, and pared some of the losses to close at Rs643.85 on the BSE, down 10.02%, on a day the benchmark BSE Sensex closed at 25,610, down 0.99%.

“The amount they are spending is not large from the perspective of the company. They are well capitalized and they recently raised Rs4,000 crore through a QIP (qualified institutional placement). They have also said that it won’t impact their dividend policy which is important since they are a high dividend paying stock," said Neeraj Dewan, director at Quantum Securities.

“I think the concern is about the rationale behind the deal and whether this is a part of a longer term plan to expand in the UK market. If it is the latter, then one needs to understand the kind of capital commitment that will be required. That clarity is still needed," Dewan added.

According to Banga, the company will not be making any further capital commitment to the UK market.

The investment was closed at a valuation of 1.9 times book value, he said, adding that the company expects the deal to be value-accretive for shareholders.

“We are a company with close to 60% FII (foreign institutional investor) shareholding. There may be some investors taking a 3-6 month view and choose to exit but investors with a longer term view will see the rationale," said Banga.

Indiabulls Housing will become the largest shareholder in OakNorth Bank with the $100 million deal.

“Pursuant to all applicable regulatory approvals from relevant regulators in lndia and the UK... Indiabulls Housing Finance Ltd is investing $100 million for a 39.76% stake in OakNorth Bank, a licensed UK commercial Bank..., “ the company said in a statement on Wednesday.

“Sameer Gehlaut, chairman of the company, will be investing in his persona| capacity up to 10% stake in OakNorth Bank at the same valuation," the statement added.

According to Banga, Indiabulls Housing will approach the RBI for a deposit-taking licence in the next 18-24 months once OakNorth Bank builds its deposit base to a certain level.

In July, the company said K.C. Chakrabarty, a former deputy governor of the RBI, will join its board.

As of September, Indiabulls Housing Finance had outstanding loan assets of Rs58,2256 crore. In September, the company raised nearly Rs4,000 crore through a QIP. After the fund raising, the firm’s capital adequacy — an indicator of financial strength expressed as a ratio of capital to risk-weighted assets — stood at 21.59%.

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