Four Private Equity Firms Express Interest In Magma Housing Finance—BQ Exclusive

The firms that have shown interest in buying the Kolkata-based housing financier include global investors Baring Private Equity Asia, CVC Capital Partners, India and South East Asia-focused Everstone Group, and homegrown Motilal Oswal Private Equity, according to three people aware of the development, who spoke on the condition of anonymity as details are not public yet.

The process, one of the persons cited above said, is being run by investment banking firm Arpwood Capital, which has set Feb.12 as the deadline for accepting non-binding bids.

E-mails sent to Magma Fincorp, Arpwood Capital, Everstone and CVC Capital did not elicit a response, while Motilal Oswal PE and Baring Asia declined to comment.

Magma Housing Finance's parent Magma Fincorp—promoted by Sanjay Chamria and Mayank Poddar—is looking to sell its housing finance arm to focus on their core asset-financing NBFC business, said the second person cited above.

The housing unit sale will also provide an exit to the existing shareholders, including domestic private equity firm True North Capital, which had invested in the company in 2015 and holds a 10.48% stake. Singapore-based fund management firm Amansa Capital holds 7.66%, and development financier International Finance Corporation owns a 4.77% stake in the business and may also exit partially or completely.

"The housing finance market in India is expected to grow significantly given the underlying opportunity due to under-penetration and significant government push to the sector to propel growth," said Pritish Kandoi, executive vice president and head-banking and financial services at investment banking firm ICICI Securities.

"The affordable housing finance space is being eyed by both strategic and financial investors, who are looking to back prospects with high growth potential or discerning management teams with prior experience. The preference is high for slightly scaled up low-ticket size retail businesses with a presence in tier-2, tier-3 cities and rural markets," he said.

Magma Housing Finance came into being after Magma Fincorp acquired the business through its subsidiary Magma Advisory Ltd. from GE Capital Corporation in 2013. The company, registered as a non-deposit taking housing finance company with the National Housing Bank, mainly gives home loans that comprised about 55%, followed by a loan against property that formed 44% and construction finance, which formed a small 1% of its assets under management, as of fiscal 2020.

The company disbursed close to 72% of its loans in tier 2 and 3 cities, with an average ticket size of Rs 9-13 lakh in the affordable housing segment. It had over a hundred branches as of the fiscal year 2020, with maximum business coming from the north and west India that brought in 70% of the business, while south and east contributed to 25% and 5% respectively.