Creador in Repco Home Finance withdrawal
The growth of India's non-banking finance companies (NBFCs) - institutions that offer banking services without meeting the definition of a bank - is well-documented. According to the Reserve Bank of India (RBI), the share of NBFC's assets as a proportion of national GDP rose from 8.4% to 12.5% between 2006 and 2013. This segment of financial services is now almost as large as the banking sector in terms of assets. It was three-quarters the size seven years ago.
Accordingly, private equity has long been tapping NBFCs as a proxy for India's growing middle class and rising consumer spending. Last week Creador became the latest GP to reap returns from the segment. The PE firm made a partial exit from Repco Home Finance (RHF), selling 3.1 million shares at INR470 apiece via a bulk transaction on the Bombay Stock Exchange, to raise INR1.45 billion ($23.6 million).
Creador originally invested $13.5 million in the company in January 2013, taking a 10% stake. It was diluted to 7.46% after RHF went public in March of last year. The partial exit represents a 3.3x money multiple and the PE firm still has a 2.46% interest in the company, worth INR719 million at current market prices.
Repco Home finance was founded in 2000 as the mortgage finance unit of Repco Bank. Headquartered in Chennai, it provides home loans across southern India and adjacent areas, with 74 branches in eight states and one union territory.
"During our tenure the business has grown rapidly. They essentially have been serving mortgages to an underserved segment, so the business has done well and margins have been very strong," explains Brahmal Vasudevan, CEO of Creador. "Since we achieved fairly good returns quite early - though we would normally invest over a five-year cycle - we decided now as a good time to exit."
Creador is just one of several PE backers. The Carlyle Group initially invested around INR1 billion in RHF between 2007 and 2009, taking a 49.7% stake. The PE firm then sold a little over 23% in secondary transactions to Wolfensohn and Creador, with the former taking 13%. It also sold a 2.78% to Antique Broking and Shardul Securities, raising a total of INR1.9 billion through all sales.
The following June, after RHF's IPO, Carlyle made a full exit via an INR4.72 billion open market transaction. Wolfensohn sold down its holding over two transactions in April this year, reportedly generating a 2x return.
Creador still has three other investments in the financial services sector, including Cholamandalam Investment & Finance, another Indian NBFC, and BFI Finance in Indonesia. The third business is another Indonesian financial services deal, which has yet to be formally announced.
"Financial services are a big area of focus for us and it is something we expect to do more of going forward," adds Vasudevan.
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