Brookfield will be investing over Rs 1,200 crores in Everstone’s NBFC company Indostar Capital Finance. Brookfield will also be the co-promoters in the company.
Speaking in detail about the contours of the deal Dhanpal Jhaveri, chairman, Indostar said, “We are delighted to have Brookfield coming in as a partner along with us at Everstone, to basically build Indostar to its next stage of growth.”
With regards to timeline, he said, “We have now signed the deal on Friday night and the plan is that over the next 2-3 months is to get all regulatory approvals which is kind of par for the course under these kind of investments and once the approvals are brought we would look to complete a preferential allotment, where we are bringing in Rs 1,225 crore of equity and compulsory convertible preference capital.” This means as a Brookfield also has to do an open offer, which would typically kick off post the regulatory approvals and complete I would say in the next 3-4 months, he added.
When asked if there was any asset risk concern because of which provisioning was required for which the company may look at fund raising, he said, “What the Brookfield investment offers us in my view is two things – one is fundamentally perception capital. A large institution and a very globally reputable institution like Brookfield committing to invest capital in a business like Indostar means that they have done significant amount of diligence and are very comfortable not only with what the business is today but very comfortable with what the growth opportunity for the business is today. What we see is a very credible, high quality, long term partner and which is what I believe is a right thing for an institution like Indostar.”
Giving the rationale for substantial dilution at the current juncture, he said, “First of all Everstone is not selling a single share that is very important to know. The credit business essentially drives only on one thing, which is raw material which is capital both in the form of credit and equity and then creating value basically is in the hands of talent which is the people, which are there in the business. What we have in a partner like Brookfield is one very clearly additional capital which comes in to drive growth but more importantly they are supporting and endorsing the existing management team and talent and the leadership of Indostar, which is going to drive and create value over the next 3-5 years.”
He further added, “We are buying more which means we are not diluting and we are continuing to be extremely positive over the next 3-5 years in terms of where we believe this business will be able to take itself forward as compared to where we see the market opportunity.”
According to him, credit in India is still an under penetrated asset class and one has to look beyond cycles and one has to be able to invest through cycles. “This is probably the best time in my view to when headwinds are there for the industry and economy as a whole to be investing in credit as an asset class.
“So, fundamentally, what we have done is with the capital base in place, we would go close to about Rs 4,200 crore of equity base at any reasonable size of leverage say 4-6 times of leverage. We think we can at least grow our book between 2-3 times from where it is today in the next 3-5 years. That offers ample growth and ample opportunity to create value in the business as it is today,” he added.