Non-bank lender Indostar Capital Finance Ltd is exploring options to merge its home loan business with the housing finance arm of Mumbai-based financial services firm JM Financial Ltd, the two companies said Monday.
JM Financial Home Loans Ltd is looking at options including the combination and listing of its retail mortgage portfolio and the home finance business of Indostar Home Finance Pvt Ltd, including other mortgage-backed business of Indostar Capital, the companies said in a statement.
Indostar Capital, majority-owned by Canadian investment firm Brookfield Asset Management Inc., and JM Financial Home Loans said the discussions are at a preliminary stage and non-binding in nature. They also said that any transaction will be subject to due diligence, negotiation of commercial terms, execution of definitive agreements and receipt of all relevant regulatory and other approvals.
JM Financial said it has “a long-term strategic interest” in the home loan and such mortgage-backed businesses and intends to scaling these businesses.
The move comes about a year after Indostar said it had discovered lapses regarding loan sanctioning, documentation, and policy implementation in its commercial vehicle loan portfolio.
In August last year, IndoStar Capital’s auditor, Deloitte Haskins and Sells LLP, flagged concerns around the non-bank finance company’s ability to continue as a going concern. Deloitte observed that Indostar’s total liabilities had exceeded its total assets maturing within 12 months, and for certain borrowings, the gross non-performing asset and net non-performing asset (NNPA) ratios had exceeded thresholds.
JM Financial Home Loans has a loan book of Rs 1,181 crore and average loan size of Rs 12 lakh. Indostar Home Finance’s loan book is valued about Rs 1,240 crore and the average loan size hovers around Rs 7.5 lakh.
Indostar is also backed by private equity firm Everstone Capital, which booked a partial exit from the company in 2020 by selling its stake to Brookfield. The Canadian asset management firm had infused about Rs 1,225 crore as fresh capital to purchase Indostar Capital’s equity shares and compulsory convertible preference shares. Brookfield currently owns about 52.6% of Indostar while Everstone holds a 33% stake.