IIFL Finance plans ₹1,272 cr rights issue at 29% discount

IIFL Finance, one of India’s leading non-banking financial companies, on Wednesday said that its board gave nod to ₹1,272 crore rights issue at ₹300 per share, a 28.9% discount to the last closing price. On Tuesday, the shares of IIFL Finance ended 2.35% lower at ₹421.70 per share on the BSE.

The fundraising announcement came a month after the Reserve Bank of India (RBI) barred the Mumbai-based financial services company from offering gold loans. The RBI on March 4 asked the Mumbai-based financial services company to stop sanctioning and disbursing gold loans with "immediate effect", raising supervisory concerns in the company’s gold loan portfolio. The company, however, is allowed to continue to service its existing gold loan portfolio through the usual collection and recovery processes.

In an exchange filing today, IIFL Finance says that it will issue 4,23,94,270 fully paid-up equity shares to existing shareholders for an amount aggregating up to ₹1,271.83 crore. A rights issue is a way of raising capital by a listed company by offering existing shareholders new equity shares. 

The rights equity share will be offered in the ratio of 1:9, which means one rights equity share for every 9 fully paid-up equity shares of the company held by the eligible equity shareholders as of the record date.

The rights issue will open on April 30, 2024, and close on May 14, 2024. The record date for the issue is April 23.

As per the company, the fully paid equity shares of the company stand at 38,15,48,435 ahead of the rights issue. Post rights issue, it will increase to 42,39,42,705 equity shares (assuming full subscription to the issue and subject to finalisation of the basis of allotment).

In a meeting on March 13, 2024, the board of IIFL Finance had approved the issue of fully paid-up equity shares of the company of face value of ₹2 each by way of a rights issue for an amount not exceeding ₹1,500 crore.

In a separate development, CARE Ratings on April 13 revised the various long-term debt instruments and bank facilities of IIFL Finance to ‘Rating watch with negative implications” amid uncertainty on the restoration of gold loan operations of the company. The rating agency says that there is uncertainty on the timelines for completion of the scheduled special audit which is to be done as per RBI’s directive.

The RBI, in its order on March 4, had said that the “supervisory restrictions” will be reviewed upon completion of a special audit to be instituted by the RBI and after rectification by the company of the special audit findings and the findings of RBI Inspection, to the satisfaction of the central bank.

CARE in its report, said that it has taken into account the RBI’s special audit tender notification dated March 22, 2024, as per which the selection of the auditor for the special audit will be done by April 12, 2024. “However, the timelines for completion of the process along with the final outcome of the special audit remains uncertain and will remain a key monitorable,” it said.

As per the agency, if the 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 on Dec 31, 2023. “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 noted.

The rating agency says it will continue to monitor the impact of these developments on its business operations, liability franchise and liquidity profile of IIFL Finance. It will also continue to monitor the progress on the scheduled special audit and the course of action taken by the company including the required corrective steps, it added.

Post RBI action, foreign brokerage Jefferies had last month downgraded the rating of IIFL Finance shares from ‘Buy’ to ‘Hold’, saying that the development would hurt earnings "due to the rapid unwinding of the profitable gold loan book". The U.S.-based brokerage house cut its target price on the stock to ₹435 from ₹765 estimated earlier. The agency believes that the bank will impact its earnings as the gold loan book accounts for around 32% of assets under management (AUM).

In the third quarter ended December 31, 2023, IIFL Finance’s gold loan AUM grew to ₹24,692 crore, up 35% YoY and 4% QoQ. The company provides gold loans in 2,721 towns/cities across 25 states and 4 Union Territories to salaried, self-employed and MSME customer segments.