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Morgan Stanley buys 20% stake in a finance unit of Centrum Group

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Morgan stanley

Morgan Stanley is set to buy a 20% stake in the affordable housing finance unit of Centrum Group, said people familiar with the transaction.

Private equity Jacob Ballas too was in the race, but Morgan has emerged as the frontrunner for the stake purchase in Centrum Housing Finance, they said.

The US financial services giant will also get a seat on the board of Centrum Housing Finance, a company set up three years ago by the Mumbai-based financial services group. Currently, there are six members on the board of the company chaired by Sridar Venkatesan. Morgan will invest Rs 200 crore for the minority stake. 

The deal values Centrum Housing Finance at Rs 1,000 crore, which is equivalent to the market value of its listed parent Centrum Capital, the sources said. The housing finance unit, which also offers loans for home improvement and renovation, has a book size of over Rs 400 crore. 

Morgan Stanley could not be reached for a reaction and Centrum declined to comment on the report.

Morgan will be the first external investor in Centrum Housing Finance, which is equity funded by Centrum Capital and its promoters. Centrum, founded by the late K Byramjee and Chandir Gidwani in 1997, was among the first brokerage firms to enter the housing finance business in the country in 2017 after the Narendra Modi government increased its focus on affordable housing. Centrum Housing Finance opened its first branch in Indore.

Morgan’s investment in Centrum Housing Finance tracks the trend in the sector that saw General Atlantic buying 6.5% in PNB Housing Finance for Rs 926 crore last May, and Blackstone acquiring 98% in Aadhar Housing Finance for Rs 2,200 crore in June 2019. 

Housing finance companies (HFCs) grew sharply between 2013 and 2018, recording a five-year CAGR of 22% in their loan books. However, in fiscal 2019, growth eased on account of liquidity squeeze after a default by IL&FS. A report by ratings agency Care last week said the HFC business model has come under immense competitive pressure, but the overall sector is well-capitalised.

“Further the sector continues to face competition from the banks, however, HFCs with strong parentage continue to grow secularly. Going forward, the growth in on-book advances of non-government HFCs would be in the range of 7-8.5% year-on-year for March 2020, given the downside risks on moderation in the housing market and a consumption slowdown, which could reduce retail demand,” the report said.

Source: TNN

(Note: The story has been published without modifications to the text. Only the headline and intro have been changed.)

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