IIFL Finance, one of India’s prominent non-banking financial companies (NBFC), has declared its intention to reinforce its capital base by accumulating 12.72 billion rupees, equivalent to approximately $152 million. This financial move entails the sale of shares through a rights issue, as confirmed by the lender on Wednesday. The strategic decision comes in the wake of regulatory challenges faced by the company, specifically concerning its lucrative gold loan services.
The announcement arrives a month subsequent to the Reserve Bank of India’s (RBI) stringent directive that prohibited IIFL Finance from issuing and disbursing new gold loans and from liquidating any loans tied to gold as collateral. This decision by the central bank was propelled by what it labeled as “material supervisory concerns” regarding the lender’s gold loan portfolio.
In a statement dating back to mid-March, IIFL Finance had communicated its intentions to amass up to 15 billion rupees through a rights issue. This particular form of share sale bestows a preferential opportunity to existing shareholders to purchase additional stock, thereby diluting their stakes less than a public issue might. However, at that time, the company had not concluded on the specific amount it planned to raise.
Since the RBI’s intervention, a visible impact was noted on the company’s market performance; IIFL Finance’s stock value plummeted by 30% when viewed against its closing price on the preceding Tuesday.
To mitigate the situation and reassure its shareholder base, IIFL Finance has positioned the share sale attractively. The shares will be offloaded at a rate of 300 rupees each. This denotes a steep 29% discount relative to the closing price on the last trading day before the announcement.
In an expression of continued support, shareholders at IIFL Finance will receive an advantageous deal where for every nine shares currently held, they will be eligible to claim one share in the rights offering. This offer is scheduled to be open to investors from April 30 to May 14, allowing ample time for participation.
Fairfax India, the titan investor holding a 15% stake in IIFL Finance, had previously announced its commitment to ensuring liquidity for the NBFC. It pledged to provide backing amounting to $200 million to prevent any fiscal constraints that might impede the lender’s operational capabilities.
Gold loans were a significant segment within IIFL Finance’s portfolio. As of December 31, their managed gold loans were reported to be worth a substantial 246.92 billion rupees. This figure represented 32% of the company’s total assets, hence illustrating the significant role gold loans play in the firm’s asset distribution and the attendant impact of the RBI’s penalization.
Amidst these circumstances, the company’s initiative to raise capital through a rights issue is a maneuver to ensure financial fortitude and potential growth scenarios. Simultaneously, it reflects the responsiveness of IIFL’s management to swiftly address the challenges posed by regulatory measures, mediate the potential risks, and endeavor to maintain trust among its investors.
The recent events surrounding IIFL highlight the dynamic nature of the Indian financial landscape and the interplay between regulatory bodies and NBFCs. For companies like IIFL Finance, navigating such complexities is part and parcel of operating within India’s financial ecosystem. This readiness to adapt and evolve through capital infusion is a testament to the resilience and strategic foresight embedded in the corporate ethos of IIFL Finance. As the company looks ahead, eyes will undoubtedly be trained on how this capital augmentation influences its path forward in the aftermath of regulatory scrutiny.
