ICICI Home Finance sale shelved as demonetisation dims real estate outlook

TPG entered the fray for the third time in October this year to buy ICICI Home Finance after parent ICICI Bank’s talks with private equity funds IVFA and Baring Private Equity Asia went sour. Photo: Abhijit Bhatlekar/Mint

ICICI Bank Ltd’s proposed sale of its home financing unit has been put on hold for the second time this year after talks with private equity fund TPG broke down amid disagreements over valuation and changed market conditions following the government’s demonetization move, according to two people familiar with the development.

TPG entered the fray for the third time in October this year to buy ICICI Home Finance Co. Ltd after parent ICICI Bank’s talks with private equity funds India Value Fund Advisors (IVFA) and Baring Private Equity Asia went sour, the people said, requesting anonymity.

“Unlike the previous two occasions, it is TPG this time which has decided not to pursue the acquisition because of a valuation mismatch and the anticipated slowdown in the real estate housing market which can negatively impact housing finance companies including ICICI Home Finance,” said one of the two people.

In April, Mint had reported that ICICI Bank had put the plan to sell the subsidiary on the back-burner after a disagreement on the price with potential private equity buyers.

The sale process resumed in June with TPG as the sole contender. “The bank was earlier looking at a price of almost Rs2,400 crore, or about two times the book value of the business, but lowered it to Rs2,200 crore as talks with TPG resumed in June,” said the first of the people cited above. When the sale was almost finalized with TPG, IVFA and Baring PE Asia offered a higher price of Rs2,400 crore in August.

According to a Mint report in June, TPG had partnered with its limited partners to fund the deal.

“The talks with IVFA and Baring broke down in October after both sides could not reach agreement on some key operational issues including the role of a senior ICICI Bank employee who was tipped to join as head of the newly acquired housing finance company,” said the second of the two people cited earlier.

“The PE funds were also insistent on ICICI Bank’s operational support to the home finance company for at least a year after the closure of transaction, but the bank was not willing to commit to such conditions,” this person said.

ICICI Home Finance’s profit fell 9% to Rs179.8 crore in the year ended 31 March. The mortgage lender had assets worth Rs1,529.2 crore as of 31 March, contributing 1.8% of consolidated assets of the group and 1.6% of the parent company’s profit.

The total housing credit outstanding in India rose 19% to Rs12.5 trillion as on 31 March from Rs10.5 trillion a year earlier, according to Icra Ltd’s estimates. The credit growth was supported by disbursements on construction-linked loans, growth in the affordable housing segment and demand from Tier II and III cities.

Industry experts say that the demand and supply of real estate are unlikely to improve in the next few quarters because of demonetization.

“Both housing finance companies and real estate developers may feel the pinch for the next few quarters as demand and supply both are expected to stay muted,” said Monesh Bhojwani, director at property advisory Cushman and Wakefield in India.

Mint reported on 9 December that builders across the country have deferred project launches and curbed marketing spending as buyers held off on purchases, following the government’s decision to withdraw Rs500 and Rs1,000 banknotes to tackle unaccounted for wealth.

Several premium projects scheduled to go on sale in 2016 have been postponed to the next quarter or even later, while project launches in the affordable or mid-range segment are subdued.