TPG back as front runner for buying ICICI Home Finance
Photo Credit: Shah Junaid/VCCircle

Buyout firm TPG Capital has again emerged as the front runner to acquire ICICI Home Finance Company Ltd, the mortgage lending arm of India’s top private-sector lender, two people close to the development told VCCircle.

The stake sale process of ICICI Home Finance, a wholly owned subsidiary of ICICI Bank, had previously received bids from several investors including Piramal Group, Baring Private Equity Asia (Baring PE Asia) and India Value Fund Advisors (IVFA), Carlyle Group, AION Capital Partners, Morgan Stanley and Tata Capital. This process has been going on for more than a year now.

Baring PE Asia and IVFA had made a joint bid and were seen as leading the race to ink the deal. However, some terms of the proposed deal including the ‘transition period’, given that ICICI Home Finance does not have separate infrastructure and operates out of ICICI Bank branches, led to breakdown of talks with ICICI.

One of the persons cited above said Baring PE Asia dropped out of the race last month while IVFA—which was still keen to sew a deal and roped in its Limited Partners (LPs)—or investors in its own PE fund—has also now decided to give up on the chase.

Email queries to Baring PE Asia, IVFA, TPG and ICICI Home Finance did not elicit any response till the time of publishing this article.

The Economic Times reported earlier in the day that the joint bid of Baring PE Asia and IVFA fell apart over differences between their operational strategy to bring ICICI Bank veteran Rajiv Sabharwal to lead the firm after the transaction.

However, as first reported by VCCircle, Sabharwal was in talks to join IVFA and would not have been directly handling operations at ICICI Home Finance. Sabharwal quit ICICI Bank earlier this month and is still in talks to join IVFA irrespective of the deal with ICICI Home Finance.

Advantage TPG

For TPG, this is an interesting development as the PE firm had pitched itself as a serious contender when the asset was put up for sale early last year. When TPG was close to clinching the deal, Baring PE Asia and IVFA offered a higher price to buy the asset.

The latest development augurs well for the game plan of TPG, which has also bid for the NBFC business of Religare Enterprises Ltd, as first reported by VCCircle. Religare Enterprises had denied any such sale talks for its non-banking finance arm Religare Finvest Ltd.

Since ICICI Home Finance works on a shared-resource basis with ICICI Bank, TPG would require a distribution network for it to run the business, such as the one that Religare Finvest would offer, said one of the persons cited earlier.

Religare Finvest focuses on SME lending and has a housing finance firm as well. If TPG does manage to seal the twin deals with ICICI Home Finance and Religare, it may turn out to be one of the biggest PE deals in the country.

Religare Finvest would provide a balance sheet size of Rs 21,049 crore while ICICI Home Finance had total advances of Rs 8,722 crore, both as of March 31, 2016.

If TPG seals the deal with ICICI Home Finance, it is likely to pitch R Sridhar, who joined the PE firm from Shriram Transport Finance Co. Ltd in 2013, as the person spearheading the venture. Shriram Transport is a previous portfolio firm of TPG from which it exited with high profits a few years ago.

Meanwhile, the backflip by Baring PE Asia and IVFA means bad news for ICICI Bank, which had kept a much higher asking price for the mortgage arm. As first reported by VCCircle, ICICI Bank was asking for a valuation multiple of about 2.8 times book value as against 1.7 times book value offered by TPG. It may have to settle for a discount to other deals in the sector that were struck in the range of 2.5 to 3.5 times book value.

ICICI Bank has been divesting its stake in other businesses, too, as the bank with the biggest baggage of bad loans among private-sector lenders looks to clean its balance sheet.

Last month, the bank cut its holding in its life insurance arm, raising around Rs 6,000 crore through the biggest initial public offering in India since state-run Coal India Ltd's issue six years ago. ICICI had previously sold a 6% stake in ICICI Prudential Life Insurance Company to PremjiInvest and Temasek for around Rs 1,950 crore.

Last year, Fairfax Financial Holdings Ltd, the Canadian investment firm founded by India-born Prem Watsa, bought additional stake in ICICI Lombard General Insurance Company Ltd in a deal worth Rs 1,550 crore.

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