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IIFL has recently sold INR 71,800 crore worth of real estate developer loans to Phoenix ARC, a company backed by Kotak Mahindra Bank. This move helps IIFL clean up its loan portfolio and improve its financial health.
The sale offered IIFL an estimated recovery of 83% on the loans. Phoenix ARC reportedly paid INR 21,500 crore in a combination of cash (15%) and security receipts (85%) for the loans. These loans are associated with real estate projects in Noida and Jogeshwari, Mumbai. It's important to note that Phoenix ARC was the sole participant in the open auction for these INR 71,800 crore loans.
Selling these loans allows IIFL to reduce its exposure to risky assets and improve its overall financial health. This is reflected in their lower gross and net non-performing assets (NPAs) as of March 31, 2023. NPAs are loans that are overdue or unlikely to be repaid in full.
While this sale is a positive step, IIFL still faces some challenges. A recent Icra Ratings report highlights that their real estate exposure of INR 4% of assets under management (AUM) and 26% of net worth as of March 31, 2023, remains vulnerable, though it has decreased compared to INR 8% and 78% respectively, the previous year.
Another factor impacting IIFL is a recent directive from the Reserve Bank of India (RBI) restricting them from issuing new gold loans or selling existing ones. This will likely lead to a reduction in their overall AUM. However, other key businesses like home loans and microfinance are not directly affected.
Despite these challenges, IIFL has a long-term strategic investor in Fairfax India, which currently holds a 15.1% stake in the company. Fairfax provided a liquidity line of INR 21,560 crore earlier this year, demonstrating their continued confidence in IIFL.
IIFL's sale of INR 71,800 crore real estate debt and focus on managing its loan portfolio reflects a strategic approach to navigating the current market conditions. While challenges remain, the support of a long-term investor and a diversified business portfolio position them for future growth.
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