Mumbai: The Reserve Bank of India has asked private equity firm Warburg Pincus to reduce its stake in mortgage lender Home First Finance to 20 per cent or more before completing its proposed acquisition of Shriram Housing Finance, according to two people involved in the deal. Low.
“Warburg has to divest 3% of Home First; they currently have about 23%. Regulators require them to keep rates at or below 20% because they are a competitor to HFC (Housing Finance Corporation). Mint On condition of anonymity. “They’re trying to sell it.”
in preliminary discussions
Another person with knowledge of the deal said regulators were in the preliminary stages of discussions with all stakeholders to figure out the contours of the deal and transfer of ownership.
Shriram Housing Finance and Home First Finance are non-bank lenders specializing in affordable housing. Home First Finance’s shares are listed on the exchanges while Shriram Housing Finance’s shares are unlisted.
Shriram Finance announced in May 2024 the sale of its housing finance subsidiary to Mango Crest Investment, an affiliate of Warburg Pincus. The proposed transaction is valued at $Rs 4,630 crore for equity and convertible instruments for housing financiers.
Shriram Finance holds a controlling stake in Shriram Housing, while Mauritius-based private equity firm Valiant Partners LP (Valiant) owns the remaining shares. As part of the transaction, Valiant will also fully divest its holdings to Warburg Pincus.
Shriram Finance, which is believed to have received final approval from the central bank last week, is now waiting for Warburg Pincus to complete a partial divestment of its stake in Home First Finance so that the sale of Shriram Housing can proceed smoothly.
“We have received approval from all regulatory authorities to divest our stake in Shriram Housing Finance Limited, subject to certain conditions. We expect to complete the transaction by the end of December 2024,” a Shriram Finance spokesperson said in response to a query .
Fundraising Agreement
Home First Finance had reached an agreement with Orange Clove Investments BV, an affiliate of Warburg Pincus, in October 2020 to raise approx. $7 billion was raised through a combination of primary fundraising and secondary sales by existing shareholders. With this move, Warburg Pincus joins existing private equity shareholders True North and Bessemer Venture Partners in currently owning 22.9% of the company.
Home First Finance declined to comment and emails sent to Shriram Finance, RBI and Warburg Pincus remained unanswered by the time of publication.
Sonam Chandwani, managing partner at law firm KS Legal, said one possible concern could be related to governance and control, as the Reserve Bank of India is generally reluctant to transfer majority stakes in non-bank financial companies to foreign investors . “This reluctance stems from the risk of capital flight during an economic crisis, which could destabilize the financial sector,” Chandwani said.
An analyst tracking non-bank lenders, who asked not to be named, said the RBI may be reluctant to have one entity hold a large stake in two similar or competing companies in the financial sector. “This is akin to two promoters holding large stakes in two banks.”
Another industry expert said, “There are many entities that hold a majority stake in a fund and also have a stake in another non-banking financial company, maybe not as a promoter but as a strategic investor. So, it seems There is no regulatory framework around this.
better business sense
However, he said it might make more business sense for Warburg Pincus to reduce its stake in Home First Finance or exit its stake.
“Why would they want a 20 per cent stake in another competing entity if they have the option of owning all or a controlling stake in a housing finance company,” he said. Makes sense.
Home First’s assets under management (AUM) are $11,229 crore as of September. The housing financier sets its highest quarterly payout ever $Net profit in second quarter ended September was Rs 1,177 crore $92 Crores.
In comparison, Shriram Housing Finance’s AUM is $15,236 crore as of September. The company’s net profit is $Net interest income (NII) in Q2 was Rs 66 crore $112 crores.
Shayan Ghosh contributed to this story.