A subsidiary of Fairfax Financial Holdings provided a Rs 500-crore lifeline to IIFL Finance, which is banned by the Reserve Bank of India from offering gold loans due to irregularities in its lending process, said people with knowledge of the matter.
Odyssey Reinsurance, a subsidiary of the Prem Watsa-promoted company, provided three-year debt in the form of secured, rated, listed bonds at a 9.5% coupon, payable semi-annually, they added.
IIFL Finance and Fairfax Financial Holdings did not respond to ET’s requests for comments.
IIFL Finance’s total loan assets under management (AUM) is Rs 77,444 crore, of which gold loans account for about 32%, or Rs 24,692 crore, as of December 31, 2023.
A day after the banking regulator curbed IIFL from giving new gold loans, Canadian billionaire Watsa announced liquidity support of $200 million to if the company faces a funding crunch.
The RBI has undertaken a special audit of the gold loan portfolio. A rating report by Care Ratings dated April 13 said that the timelines for completion of the audit process and the final outcome remain uncertain and will remain a key monitorable.
“If the said restrictions prolong, the gold book is expected to run down in next 2-3 quarters which currently constitute 79% of the IIFL’s standalone AUM and 32% of the consolidated AUM as of December 31, 2023,” the report said. “The continuation of the restriction on the gold loan segment is expected to have a negative impact on the overall liability franchise across segments with moderation in its financial flexibility,” it added.
The finance company will use 75% of the proceeds from the bonds to refinance existing debt and 25% for general corporate purposes, according to the information memorandum.
Fairfax India holds a 15.1% stake in IIFL Finance, a 30.92% stake in IIFL Securities, and a 32.88% stake in 5paisa Capital, a discount stock broking entity of the IIFL Group. A Fairfax entity first invested in IIFL Holdings in 2010 by picking a 9% stake, and by 2016, it was raised to 35.7%. Over the years, it diluted ownership in the company.
Separately, IIFL Finance is also preparing to raise Rs 1,500 crore by way of a rights issue before the end of this quarter, a statement issued by the company in mid-March said.
