India's largest private sector lender ICICI Bank has put its plan to offload home finance division on hold. Valuation mismatch between ICICI Bank and potential private equity (PE) buyers has resulted in a major block for the deal on acquiring ICICI Housing Finance. PE firms have asked for a 20 percent discount on valuation shown by ICICI Bank.
ICICI Bank has put its home finance division's valuation at INR 2,400 crore ($370million) (1 crore= 10 millions). Private equity investors didn't accept the valuation of 2x of the book value for acquiring home finance division of ICICI Bank. Private equity investors said to have asked for a 20 percent discount on valuation made by ICIC Bank.
LiveMint reports that global private equity investors such as TPG, Partners Capital and Baring Private Equity Asia were negotiating with ICICI Bank for taking over the home finance division. Standard Chartered Bank and ICICI Securities are the advisers on ICICI Housing Finance. However, ICICI Bank, ICICI Securities and Partners Capital didn't comment on the latest developments on home finance division sale plan.
"The bank's decision to sell the home finance arm at a valuation of Rs 2,400 crore or a 2X of book value was not accepted by PE investors. PE firms' offer of 20 percent discount to the valuation sought was not acceptable to ICICI. The bank has decided not to go with the deal," a person close to the deal said as quoted by the site.
India Infoline further adds that ICICI Home Finance is not functioning as an independent platform in home finance business. It's engaged in portfolio-originated from ICICI Bank. Two times of book value were not acceptable for private equity investors in the wake of declining of profits. ICICI Home Finance suffered drop in net interest income and dividend income, while surge in administrative expenses.
"ICICI Home Finance is not an independent platform, but a portfolio originated from ICICI Bank. To make it an independent entity, you need your own distribution network," said a private equity investor who decided to back out from the discussions.
Until January this year, TPG Capital and Partners Capital were the bidders to takeover ICICI Home Finance. Sources revealed that bids were in the range of INR2,700 crore and INR 2,800 crore. The deadline for the bids closed on 15 January 2016.
Different valuations and bid prices are making rounds in the market, but so far ICICI Bank or private equity investors have not announced details of the ongoing discussions. A recent release by ICICI Bank said its total outstanding home loans were INR 1 lakh croe ($15 billion), as reported by The Economic Times.
ICICI Home Finance had assets valuing INR 1,491 crore, accounting for 1.8 percent of group's consolidate assets as on 31 March 2015. ICICI Home Finance made a profit of INR 197.5 crore contributing 1.6 percent of the total net profit of ICICI Group. ICICI Home Finance's profit after tax (PAT) declined from INR 223 crore in 2013-14 financial year.
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