April 24, 2024

IIFL Finance says Fairfax India to invest up to $200 million in liquidity support

IIFL Finance said its shareholder Fairfax India Holdings Corporation has committed to provide liquidity support of $200 million to the company amidst the recent Reserve Bank of India (RBI) embargo on the company’s gold loan disbursements, effective March 5, 2024.

The RBI’s embargo has raised liquidity concerns amongst the company’s investors and lenders. In response to these concerns, Fairfax India has agreed to invest up to $200 million of liquidity support on terms to be mutually agreed and subject to applicable laws, including regulatory approvals (if any), IIFL Finance said in a regulatory filing.

“We have been long-term investors in the IIFL group of companies and have full trust and confidence in the company’s strong management team led by Nirmal Jain and R Venkataraman. We are confident that Nirmal and Venkat will take corrective actions to meet and exceed RBI’s compliance standards,” said Prem Watsa, Chairman of Fairfax India.

Nirmal Jain, Managing Director and Founder of IIFL Finance said that the company was committed to complying fully with RBI’s directives and growing the business under the regulator’s guidance.

IIFL Finance shares were locked at a 20% lower circuit for the second straight session on Wednesday after the RBI directed the company to cease and desist, with immediate effect, from sanctioning or disbursing gold loans or assigning/ securitising/ selling any of its gold loans.

Gold loan book forms around 32% of the company’s assets under management (AUM).

Also Read: IIFL Finance share price down 20%; Jefferies downgrades the stock ratings to Hold as gold loan ban may hurt profit

However, IIFL Finance had highlighted it can continue to service its existing gold loan portfolio through the usual collection and recovery processes.

Meanwhile, Jefferies has downgraded IIFL Finance shares to ‘Hold’ with a price target of 435 per share as it believes RBI’s ban will hurt the profits of the company.

Analysts at Jefferies, assuming that the ban stays for 9 months, have cut FY25-26 estimates earnings per share by 26-27% and Return on Equity estimates by 460-480bps.

At 12:00 pm, IIFL Finance shares were locked at a 20% lower circuit at 382.80 apiece on the BSE.

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