Religare Finvest Ltd (RFL), an NBFC focused on small and medium enterprises and a wholly owned subsidiary of Religare Enterprises Ltd (REL), is raising Rs 150 crore from Avigo Capital Partners, a mid-market private equity firm, the parent company said in an investors’ presentation.
“We have signed definitive documents for an equity investment of Rs 1.5 billion (Rs 150 crore) in RFL by Avigo Capital Partners (in November 2011),” REL stated in its FY12 second quarter presentation for the analysts.
VCCircle was the first to report the development on October 27.
In a separate disclosure Religare Finvest said the transaction involves issue of compulsory convertible preference shares.
Incidentally, the company has also raised Rs 754 crore ($147.27 million) from retail issue of non-convertible debentures.
The three-year-old company provides various lending solutions to SMEs including loan against property, commercial assets, marketable securities, and plant & machinery, as well as unsecured working capital finance. It also runs a retail capital markets financing business that offers loan against shares and ESOP funding. Currently, the financial services firm has 39 branches across all major cities and claims to be growing to a book size of over $2 billion.
Like any NBFC, the financial performance of RFL is also vulnerable due to interest rate volatility and it is substantially dependent upon the level of its net interest margins. In a filing to SEBI for listing NCDs, the company said that the income from its financing activities is the largest component of its total income and constituted 75.09 per cent and 78.98 per cent of its total income in fiscal 2010 and fiscal 2011, respectively. As of March 31, 2011, its loan book was Rs 89,669.27 million. It borrows and lends funds on both fixed and floating rates.
The transaction is the first-known financial services play for Avigo Capital that typically invests in manufacturing and engineering sectors.
The Indian financial sector (excluding the banks) has been through a great deal of regulatory turmoil over the past 18 months, which has changed the entire sector. If the ban on entry loads was a game-changer for mutual funds in FY10, the change in ULIP guidelines and the ban on universal life products will severely affect the life insurance sector in FY11. In FY12, the NBFCs will be facing some restrictive regulations from the RBI, some of which have actually been implemented and others may be implemented in future. The stock prices of all publicly listed NBFCs have suffered badly amid this regulatory upheaval.
The most high profile PE investment in an NBFC this year has been in Indostar Capital, which raised nearly $200 million in commitments from investors like Ashmore Group Plc, Everstone Capital Management, Baer Capital and CDIB Capital, besides Goldman. The company’s team includes former senior executives of Aegon India and Bank of America Merrill Lynch India, among others.
Another deal took place when private equity giant Kohlberg Kravis Roberts & Co. L.P. (KKR), along with International Finance Corporation (IFC), invested Rs 440 crore ($100 million) in Kolkata-based non-banking finance company Magma Fincorp. KKR also operates an NBFC in India that has concluded deals with Max India’s Analjit Singh, JSW’s Sajjan Jindal and the Coffee Day Group.
Also, investors like Apollo Global Management and CX Partners are looking to tap India Inc’s lending requirements by starting special situation and mezzanine funds.