IndoStar Capital considers selling stake in housing finance unit

Private equity-backed company losses have raised concerns about its stability

IndoStar Capital Finance is considering selling part of its stake in a home loan subsidiary for raising resources to address concerns over the private equity-backed company’s ability to continue as a going concern.

The company, where private equity players Brookfield, Everstone and others hold a majority stake, said in a BSE filing its monetization plan for lndoStar Home Finance Private depends on approval from the board of directors.

The housing finance unit posted a 253 per cent year-on-year (YoY) rise in net profit to Rs 16 crore in the first quarter ended June 2022. Its assets under management grew 45 per cent YoY to Rs 1,467 crore in the same quarter.

IndoStar Capital incurred losses due to the coronavirus pandemic, resulting in defaults in its loan portfolio and leading to uncertainty about its existence as a going concern. It had reported a consolidated loss of Rs 736 crore in FY2021-22 and Rs 214 crore in FY2020-21. It posted a net profit of Rs 61 crore in the quarter ended June 2022 (Q1FY23).

As of June 30, 2022, IndoStar Capital exceeded the threshold specified for gross non-performing asset (GNPA) and/or net NPA ratios for certain borrowing arrangements. Its Gross NPA stood at 8.2 per cent and Net NPAs at 3.6 per cent at end of June 2022.

IndoStar Capital said some lenders have the option to terminate, reduce, suspend or cancel the facility. However, the management expects that lenders may increase interest rates till the GNPA/ NNPA ratio exceeds thresholds.

The company said has a record of accessing diversified sources of finance, but the success of its plans cannot be guaranteed.

After the June quarter, IndoStar Capital has raised incremental financing of Rs 380 crore from banks and financial institutions. As at June 30, the company was in compliance with the required capital adequacy ratios and had cash and cash equivalents aggregating Rs 255.07 crore.

In May 2022, the company announced that it had detected lapses like a deviation from policies for sanctioning loans and control deficiencies in the commercial vehicle loan (CV) portfolio. The review of CV and SME loan portfolio is expected to be completed by September 2022.