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IndoStar Capital close to acquiring ICICI Home Finance

LiveMint logoLiveMint 03-07-2017 Gopika Gopakumar

Mumbai: Two years after putting its wholly owned subsidiary ICICI Home Finance on the block, ICICI Bank Ltd is close to selling a majority stake in the company to IndoStar Capital for Rs2,000 crore, two people directly aware of the development said.

Everstone Capital-backed IndoStar will pay Rs2,000 crore for a 67% stake in the company, valuing the home finance unit at a little under Rs3,000 crore, while the private sector lender will continue as a minority shareholder with a 33% stake, the people cited above said on condition of anonymity.

Once closed, the transaction will mark the end of a long-drawn sale process during which ICICI Bank came close to selling its home finance arm twice but a deal did not materialize owing to last minute disagreements. Other contenders for ICICI Home Finance included bulge bracket PE funds TPG, India Value Fund Advisors and Baring Private Equity Asia.

Mint had reported on 12 December last year that the private sector lender was looking at a valuation of close to Rs2,400 crore, or about two times the book value of the housing finance business, for a 100% stake but lowered it to Rs2,200 crore as talks with TPG resumed in June last year. When a sale was almost finalized with TPG, IVFA and Baring PE Asia offered a higher price of Rs2,400 crore in August.

The talks with the two private equity funds broke down two months later after both sides could not agree on some key operational issues including the role of a senior ICICI Bank employee who was tipped to join as head of the newly acquired housing finance company, Mint had reported.

The sale process revived after R. Sridhar, who was earlier a senior advisor to TPG, moved to IndoStar as executive vice-chairman and chief executive in April this year.

According to the two people cited above, the term sheet has been signed and the deal is likely to be closed before December-end. ICICI Bank will provide operational support to the company for at least a year until the bank finally decides to exit the company completely, the people said. “ICICI Bank has been receiving proposals from interested parties regarding its stake in ICICI Home Finance Company. However, no proposal has been taken to the board of directors of the bank for consideration,” said an ICICI bank spokesperson.

A spokesperson for IndoStar Capital said the company would not comment on speculation.

ICICI Home Finance reported a net profit of Rs183 crore in the year ended March 2017 as against Rs180 crore a year earlier, contributing 1.5% of the total assets of the consolidated group and 1.8% of the group’s net profit. As on March end 2017, the housing financier had a loan book of Rs9,282 crore, according to ICICI Bank’s annual report.

The Economic Times reported on 19 April that IndoStar, which is predominantly into corporate finance and loan against property for SME borrowers, is looking to expand its retail lending business through its subsidiary IndoStar Home Finance which started operations in August last year. At the end of 2016-17, IndoStar had a loan book of around Rs5,000 crore.

“It makes sense for ICICI Bank to sell its housing finance business, as housing finance companies will fetch attractive valuation in this market. Also, regulations have become flexible for banks to raise long-term borrowing for lending to housing. The deal will therefore not impact ICICI Bank’s own standalone housing finance business,” said a banking analyst with Reliance Securities.

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