IIFL Finance, one of India’s prominent non-bank lenders, has unveiled plans to raise $152 million through a rights issue, as reported on Wednesday. This strategic move comes in the wake of regulatory actions taken by the Reserve Bank of India (RBI), which recently imposed restrictions on the company’s gold loan operations.
Mid-March Announcement Precedes Final Decision
Back in mid-March, IIFL Finance had announced its intention to raise capital through a rights issue, with an initial target of up to 15 billion rupees. However, at that time, the precise amount had not been determined. This decision followed closely after the RBI issued directives to halt the sanctioning, disbursing, and selling of gold loans by the company, citing significant supervisory concerns within its loan portfolio.
Rights Issue Details and Shareholder Benefits
In its latest move, IIFL Finance has outlined the specifics of its rights issue, aiming to raise 12.72 billion rupees ($152 million) through the sale of shares. Shareholders are set to receive one rights share for every nine shares they hold. The issue period is scheduled to run from April 30 to May 14, providing existing shareholders with preferential treatment in accessing additional equity.
Response from Major Stakeholders and Market Impact
Fairfax India, holding a significant 15% stake in IIFL Finance, has pledged to provide up to $200 million in liquidity to support the lender amidst the current challenges. Despite this supportive gesture, IIFL Finance’s stock has witnessed a notable decline of 30% since the regulatory intervention by the RBI. The decision to offer shares at a 29% discount to the last close reflects the company’s efforts to navigate the prevailing market conditions.
Strategic Focus and Forward Outlook
With a considerable portion of its assets tied to gold loans, IIFL Finance faces the task of diversifying its portfolio and mitigating risks associated with regulatory restrictions. The company’s gold loans under management amounted to 246.92 billion rupees as of December 31, constituting 32% of its total assets. Moving forward, the successful execution of the rights issue and strategic allocation of capital will be crucial in sustaining growth and restoring investor confidence.
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