Phoenix ARC Acquires Stressed Real Estate Loans from IIFL in a Boost for Recovery

Mumbai, 10th April 2024

In a strategic move in asset reconstruction, Phoenix ARC, backed by Kotak Mahindra Bank, has strategically acquired two stressed loans totaling ₹1,800 crore from IIFL, marking a significant transaction that promises an 83% recovery rate for the non-bank lender supported by Fairfax. This purchase, valued at ₹1,500 crore, was executed through an open auction, with Phoenix ARC emerging as the sole bidder.

A Balanced Deal Structure

The deal structure was thoughtfully arranged, with Phoenix ARC paying 15% in cash and the remaining 85% in security receipts. The loans in question are tied to real estate projects located in Noida and Jogeshwari, Mumbai, showcasing the geographic diversity and potential value of the assets involved.

Improvement in Asset Quality

The sale has played a crucial role in aiding IIFL to substantially improve its asset quality, reducing its gross and net stage-3 assets significantly over the course of a year. This strategic shedding of troubled assets is part of a broader effort to streamline IIFL's loan book and enhance its financial health.

Real Estate Exposure and Ratings Watch

Despite the sale, IIFL's exposure to real estate remains a point of concern, with potential vulnerabilities flagged by Icra Ratings. Additionally, the Reserve Bank of India's directive halting IIFL Finance's gold loan activities has led rating agencies to closely monitor the company's credit status. Fairfax India's continued support, demonstrated by a significant liquidity line commitment, underscores the strategic importance of IIFL Finance within its portfolio.

Navigating Regulatory Challenges

The RBI's restrictions pose challenges to IIFL's asset management strategy, with a predicted impact on overall assets under management. However, Crisil notes that key segments of IIFL's business portfolio, such as home loans and microfinance, remain unaffected by this directive, suggesting a pathway for sustained operations amidst regulatory scrutiny.