Fairfax’s Subsidiary Injects Rs 500 Crore into IIFL Finance Amid RBI Restrictions

A subsidiary of Fairfax Financial Holdings has provided a lifeline of Rs 500 crore to IIFL Finance, which has been prohibited by the Reserve Bank of India (RBI) from offering gold loans due to irregularities in its lending process, according to sources familiar with the matter.

Odyssey Reinsurance, a subsidiary of Fairfax Financial Holdings, extended a three-year debt in the form of secured, rated, listed bonds with a 9.5% coupon rate, payable semi-annually, the sources added.

Both IIFL Finance and Fairfax Financial Holdings did not respond to requests for comments.

As of December 31, 2023, IIFL Finance’s total loan assets under management (AUM) amounted to Rs 77,444 crore, with gold loans constituting about 32%, or Rs 24,692 crore.

Following the RBI’s restriction on IIFL Finance’s issuance of new gold loans, Canadian billionaire Prem Watsa announced liquidity support of $200 million in case the company faces funding difficulties.

The RBI has initiated a special audit of the gold loan portfolio. A rating report by Care Ratings dated April 13 noted that the timelines for completing the audit process and its final outcome remain uncertain, posing a significant monitorable factor. The report highlighted that if the restrictions persist, the gold loan segment, which accounts for a substantial portion of IIFL’s assets, could see a decline over the next 2-3 quarters.

The finance company intends to utilize 75% of the proceeds from the bonds to refinance existing debt and allocate the remaining 25% for general corporate purposes, according to the information memorandum.

Fairfax India holds stakes in various entities of the IIFL Group, including IIFL Finance, IIFL Securities, and 5paisa Capital. Fairfax initially invested in IIFL Holdings in 2010 and gradually increased its ownership over the years. Additionally, IIFL Finance is planning to raise Rs 1,500 crore through a rights issue by the end of the current quarter, as per a statement released by the company in mid-March.

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