Indiabulls in reverse merger with housing finance business

Indiabulls Financial Services (IBFSL) will go in for a reverse merger with its housing finance business, a wholly-owned subsidiary at present, in a bid to optimise available funds utilization.

With the move, Indiabulls group's mortgage finance entity, Indiabulls Housing Finance (IHFL) would gain access to enhanced capital level of nearly Rs5,000 crore, up from Rs900 crore now, according to company officials. With the move, the company would also emerge as one of the top housing finance companies in India in terms of loan book size, behind industry leaders HDFC and LIC Housing Finance.

Over the medium term, it could also lead to better ratings for the housing finance company, would lower its cost of funds.
Also, in case the company was able to pass on this lower cost of funds to its customers, it would lower home loan rate for borrowers.

The IBFSL board on Friday decided to allot one share of IHFL for every share of the parent company currently held by its shareholders, subject to regulatory and other approvals.


According to a company official, cited by The Times of India, since the housing finance company, under current regulations, had to adhere to strict capital adequacy and other rules, an enhanced capital base would allow it to grow faster. Over the last three years, the compounded annual growth rate (CAGR) of the home loan business has been about 40 per cent with the total book size now at about Rs22,000 crore, and to enhance the capital base further, the company also made a preferential allotment of warrants to its promoters and senior management, which would bring in about Rs450 crore with the conversion of warrants.

The company yesterday announced a 24 per cent increase in net profit during the January-March period, at Rs303 crore, against Rs244 crore during the year-ago period. Total revenue for Q4FY12 stood at Rs1,122 crore, a growth of 45 per cent from Rs772 crore during the same period of FY11.