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M. Ramesh

Due diligence over; co in the final stage of negotiations

Chennai June 7 "A large foreign bank" is on the verge of picking up minority stake (up to 49 per cent) in Repco Home Finance Ltd, the housing finance subsidiary of Repco Bank, the Chennai-based multi-state co-operative bank.

Confirming this to Business Line, Mr M. Balasubramanian, Managing Director of Repco Home Finance, said that the deal was likely to be sealed in August.

"The due diligence is over and we are in the final stages of negotiations," he added.

He did not disclose the name of the investing foreign bank because Repco Home has signed a non-disclosure agreement with the party, but said that it was a very large bank with operations in many parts of the world.

MoU terms

As per the terms of a MoU signed at the beginning of the negotiations, the foreign bank has an option of acquiring up to 49 per cent. Soon after the bank gets on board, Repco Home Finance intends to come out with an IPO, Mr Balasubramanian said.

Repco Home Finance, promoted in 2000 with a paid-up equity of Rs 10 crore, is a profitable mortgage finance company with outstanding loans of Rs 442 crore at the end of last year.

Net doubles

In 2006-07, it made a net profit of Rs 11.52 crore, nearly twice as much as in the previous year.

Its return on assets stood at 2.61 per cent, which Mr Balasubramanian claims to be the second best in the industry, after HDFC.

Return on capital employed of 24.83 per cent and net NPAs of 1.5 per cent make it an attractive investment target, he added.

Capital adequacy ratio

Repco Home Finance's capital adequacy ratio was around 12 per cent, but after the RBI brought down the risk-weights on home loans under Rs 20 lakh to 50 per cent (from 75 per cent previously), its CAGR rose to 16.57 per cent.

With a target to raise its loan book to Rs 650 crore and sitting on a comfortable capital adequacy ratio, Repco Home Finance is planning to buy a home loan portfolio of about Rs 100 crore this year.

Mr Balasubramanian said that the company has growth plans soon after the foreign bank comes on board. One of them, for which a proposal has been submitted to the Tamil Nadu Government, concerns a low-cost housing project on public-private partnership model for industrial workers, say, in Sriperumbudur.

Repco Home Finance wants the Tamil Nadu Government to give it land, about 100 acres, as the Government's share of equity.

It would bring in a developer, who would build a housing colony for 10,000 people plus a commercial complex.

The developer would get profits from the commercial complex but provide the housing at near-cost price.

Repco Home Finance, armed with its collaborator's financial muscle, will providing the necessary funding.

More Stories on : Housing Finance | Foreign Banks | Mergers & Acquisitions

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