The fundraise will see the financer divest anywhere between 15% and 20% stake
HLFL plans to come out with an initial public offering (IPO) in the near to medium term
Hinduja Leyland Finance Ltd (HLFL), the captive financing arm of commercial vehicle maker Ashok Leyland, is in talks with potential investors to raise up to $100 million in primary equity, two people aware of the development said,requesting anonymity.
HLFL has appointed EY as sell-side advisors for the transaction, which will see it divesting between 15% and 20% stake to an incoming investor, said the people cited above.
“The transaction is currently at an early stage and discussions are underway with several potential investors including large private equity funds," said one of the people mentioned above.
Incorporated in 2008, HLFL commenced operations in 2010 as a non-banking financial company (NBFC). It was made a captive financier by Hinduja group flagship Ashok Leyland. HLFL eventually diversified into financing non-Ashok Leyland vehicles while entering into the loan against property segment (LAP) in fiscal 2015.
The company extends loans for commercial vehicles, as well as three-wheelers, two-wheelers, tractors and construction equipment. It has also been buying loan portfolios over the past two years to diversify its product profile, thereby augmenting net interest margins.
As of December 2019, corporate filings show that Hinduja group entities held 93.08% in HLFL with Ashok Leyland the primary shareholder with a 61.83% stake. Ashok Leyland raised its stake to 67.2% as on 25 March 2020 with plans to increase it further to around 70% in the near future to keep majority shareholding.
HLFL plans to come out with an initial public offering (IPO) in the near to medium term. The Hinduja group is expected to continue to hold majority stake even after the IPO.
Emails sent to HLFL remained unanswered until press time. A spokesperson for EY chose not to comment.
Existing shareholders have also infused capital at regular intervals in HLFL. From June 2017 onwards, they have infused fresh capital of around ₹650 crore. In 2103, PE firm Everstone Capital, invested around ₹200 crore for an undisclosed stake in the company and followed it up with another round in 2017 before exiting the investment in January this year for an undisclosed sum.
The NBFC has over the past few years also explored IPO opportunities but is yet to finalize plans in this regard. Significantly, the latest fundraise comes at a time when the commercial vehicle business of most manufacturers continues to be under severe stress because of the coronavirus outbreak, which has heavily impacted demand.
Mint reported on 4 August that India’s non-bank lenders, who are currently staring at ₹1.51 trillion debt repayments due in the next six months, are rushing to raise fresh equity and pursuing mergers with bigger peers to avert defaults.
This is because the pandemic has darkened the outlook for the sector that has struggled since the collapse of Infrastructure Leasing and Financial Services Ltd nearly two years ago.
The Reserve Bank of India’s targeted long term repo operations have eased the liquidity situation for some NBFCs, especially the better-rated ones, but those with inferior asset quality may find it tough to survive without rescue.
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