Kolkata-based Magma Fincorp Ltd has signed an agreement to acquire the housing finance business of GE Capital India for Rs 1,600 crore in an all-cash deal to be financed through a combination of equity and debt.
The transaction will be in two parts: acquiring GE Money Housing Finance, which has a home loan portfolio of Rs 660 crore, and the complete loan against property (given to small and medium enterprises) portfolio aggregating Rs 940 crore of GE Money Financial Services.
Access to NHB finance
GE Money Housing Finance will become a subsidiary of Magma. The new subsidiary will be called as Magma Housing Finance Ltd. This acquisition will give Magma the licence to immediately commence housing finance lending and gain access to refinance from National Housing Bank.
Magma, which is a non-banking finance company, is diversifying into the home loans space as stress is building up in the commercial vehicles segment due to downturn in the economy.
The NBFC has 60 days to close the deal. It has approached a consortium of 20 banks for debt financing. These include State Bank of India, Punjab National Bank and Bank of India. Some part of the financing for the deal will also come from internal accruals.
The cost of funds, or the rate at which Magma will borrow from banks, will be in the 10.25-11 per cent range, Sanjay Chamria, Vice-Chairman and Managing Director, said.
In line with strategy
According to Anish Shah, President and CEO, GE Capital India, “It (sale of home loans business) is in line with a decision we had taken three years ago to exit from our mortgage loan business in India. We will continue to focus on growing our commercial finance business and credit card joint venture in India.”
Magma has appointed Sachin Khandelwal, former CEO of ICICI Home Finance, to lead Magma’s housing finance business.
The company will consider absorbing GE Money Housing Finance employees, said a senior Magma official.
“We are looking for people with experience in mortgage housing finance. We are discussing that (hiring them) with GE,” Khandelwal said. He did not disclose the number of employees that GE has in its housing finance business.
Shares of Magma Fincorp, closed at Rs 67, up 2.37 per cent on the Bombay Stock Exchange. GE Money Housing Finance is not a listed entity.