IIFL Finance Secures $175 Million Investment from HSBC, Union Bank, and Bank of Baroda

IIFL Finance Secures $175 Million Investment from HSBC, Union Bank, and Bank of Baroda

In July 2023, IIFL Finance, one of India’s prominent non-banking finance companies, announced that it successfully raised $175 million through the external commercial borrowing (ECB) route. This fundraising was accomplished through investments from HSBC, Union Bank, and Bank of Baroda. The company disclosed this information in a filing made with the stock exchange.

The external commercial borrowing (ECB) route allows Indian companies to raise funds from international sources in foreign currency. By securing this significant investment, IIFL Finance aims to strengthen its financial position and support its business operations and growth plans. The participation of notable financial institutions like HSBC, Union Bank, and Bank of Baroda demonstrates their confidence in the company’s prospects and underscores the attractiveness of IIFL Finance as an investment opportunity.

This funding infusion will likely enable IIFL Finance to enhance its lending activities, expand its customer base, and pursue strategic initiatives in the non-banking finance sector. It reflects the continued investor interest in India’s financial landscape and underscores the company’s ability to attract capital from renowned institutions through the ECB route.

In March 2023, IIFL Finance further strengthened its financial position by raising an additional $100 million through the external commercial borrowing (ECB) route. This fundraising round included $50 million in long-term funding from Export Development Canada, a government-owned financial institution, and another $50 million in co-financing from Deutsche Bank (Singapore).

By successfully securing this funding, IIFL Finance has expanded its access to international capital markets and diversified its sources of funding. The participation of Export Development Canada and Deutsche Bank in this round of financing demonstrates the company’s ability to attract investments from both government entities and renowned financial institutions.

These funds are expected to bolster IIFL Finance’s lending capabilities, support its ongoing operations, and fuel its growth plans. The ability to raise significant funds through the ECB route highlights the company’s strong financial standing and underscores its attractiveness as an investment destination within the non-banking finance sector.

Kapish Jain, the Group CFO of IIFL Finance, highlighted the significance of the funds raised through the external commercial borrowing (ECB) route in an exchange filing. He mentioned that these funds are of a long-term nature, providing stability to the company’s asset-liability management (ALM) position. This infusion of capital will aid IIFL Finance in maintaining a robust financial position and supporting its ongoing growth initiatives in its core businesses.

Jain also emphasized the importance of diversifying borrowing sources, as it reduces reliance on a single channel and enhances the company’s financial resilience. By accessing funds through the ECB route, IIFL Finance broadens its options and gains flexibility in managing its borrowing requirements. Additionally, this diversification strategy helps in mitigating risks associated with any potential fluctuations in borrowing costs, ultimately contributing to the company’s overall financial strength.

Overall, Jain’s statement underscores the strategic significance of the funds raised through the ECB route. They not only strengthen IIFL Finance’s ALM position and support its growth trajectory but also enable the company to optimize borrowing costs and enhance its financial sustainability in the long run.

In June of this year, IIFL Finance Ltd initiated a public issue of secured bonds to raise ₹1,500 crores. The company announced its intention to raise funds through secured non-convertible debentures (NCDs), providing investors with a secure investment option.

The secured bonds have a tenure of 60 months and offer an attractive effective yield of 9 percent per annum. Additionally, the NCDs are available in varying tenures of 24 months, 36 months, and 60 months, giving investors flexibility in choosing their investment horizon.

IIFL Finance has also outlined the options for interest payment frequency. Investors can opt for annual interest payments, interest payments at maturity, or a monthly interest payment option for the 60-month tenure. This variety of payment frequencies provides investors with choices that align with their preferences and cash flow requirements.

The issuance of secured bonds through public issues is a strategic move by IIFL Finance to raise funds and meet its financing needs. The attractive yield and flexible investment options are designed to appeal to investors seeking fixed-income instruments with reliable returns over the designated tenures.

On April 6, rating agency Moody’s Investors Service upgraded the long-term corporate family rating of IIFL Finance Limited from B2 to B1. This rating upgrade reflects Moody’s assessment of the improved creditworthiness and financial profile of IIFL Finance.

The upgrade to B1 indicates a higher credit quality and suggests a lower risk of default on the part of IIFL Finance. It signifies increased confidence in the company’s ability to meet its financial obligations and highlights the positive trajectory of its financial performance. The rating upgrade from B2 to B1 positions IIFL Finance in a more favorable credit rating category, which can potentially enhance its access to funding at favorable terms.

Moody’s rating upgrade acknowledges the steps taken by IIFL Finance to strengthen its financial position, manage risks, and improve its overall credit profile. The upgrade reflects positively on the company’s operational efficiency, risk management practices, and ability to generate sustainable earnings.

Overall, the rating upgrade by Moody’s is a testament to the improved creditworthiness and financial stability of IIFL Finance Limited, which can contribute to enhancing investor confidence and expanding its growth opportunities in the market.

In addition to upgrading IIFL Finance Limited’s long-term corporate family rating, Moody’s Investors Service also upgraded the company’s foreign currency senior secured debt rating from B2 to B1. Furthermore, the foreign and local currency senior secured medium-term note program ratings were upgraded to (P)B1 from (P)B2. Moody attributes these upgrades to the strong momentum generated by IIFL Finance’s asset-light business model, which has led to improvements in profitability, capital position, and funding.

Moody’s assessment underscores the positive impact of IIFL Finance’s asset-light approach on its overall financial performance. By adopting an asset-light model, the company has been able to optimize its operations, resulting in enhanced profitability. Additionally, this model has contributed to strengthening the company’s capital base and improving its ability to secure funding.

The rating outlook for IIFL Finance remains stable, indicating Moody’s expectation that the company will continue to maintain its creditworthiness and financial performance in the near term. The stable outlook reflects the confidence in IIFL Finance’s ability to sustain its positive momentum and manage risks effectively.

According to Moody’s report, IIFL Finance experienced a notable increase in its off-balance sheet loans, which grew to 37% of its total assets under management (AUM) as of December 2022. This represents a significant rise from the 21% recorded at the end of March 2019 (fiscal 2019). Moody highlights that this increase in off-balance sheet loans has had a positive impact on the company’s funding, profitability, and capital.

The expansion of off-balance sheet loans suggests that IIFL Finance has been successful in utilizing alternative financing methods to support its lending activities. These off-balance sheet loans provide an additional avenue for the company to extend credit and generate income without directly reflecting on its balance sheet. This approach has likely contributed to improved funding options for the company, enabling it to diversify its funding sources beyond traditional borrowing methods.

The increased reliance on off-balance sheet loans has also had a positive effect on IIFL Finance’s profitability and capital. By expanding its loan book through off-balance sheet financing, the company has been able to generate additional interest income and improve its profitability. Moreover, this growth in assets has likely contributed to the strengthening of its capital position, enhancing its ability to support future growth and manage risks.

Moody’s recognition of the positive outcomes resulting from IIFL Finance’s increased off-balance sheet loans underscores the effectiveness of the company’s strategies in driving funding, profitability, and capital improvements. It highlights the successful integration of alternative financing methods within its business model, ultimately contributing to its overall financial performance and stability.