JM Financial streamlines operations with new wholesale and distressed credit business platform
JM Financial consolidates wholesale and distressed credit business, Real Estate financing, NBFCs, regulatory changes impact RoA
Wholesale CreditDistressed CreditJm FinancialReal Estate FinancingNbfcsReal EstateJul 06, 2024
The proposed transaction involves two key acquisitions. JMFL will acquire a 42.99% stake in JM Financial Credit Solutions Limited (JMFCSL) for Rs 1,282 crore, increasing its stake in JMFCSL from 46.68% to 89.67%. Simultaneously, JMFCSL will acquire a 71.79% stake in JM Financial Asset Reconstruction Company Limited (JMFARC) from JMFL for around Rs 856 crore, raising JMFCSL’s stake in JMFARC from 9.98% to 81.77%.
The net cash outflow of around Rs 426 crore from JMFL will be funded from surplus cash reserves. The transaction, pending regulatory and shareholder approvals, is expected to complete within 3-6 months.
According to Vishal Kampani, non-executive vice-chairman of JM Financial, the consolidation will align the company's corporate and capital structure, offering greater flexibility to optimize capital allocation and distribution of profits to shareholders. He foresees significant long-term growth opportunities emerging for the business and is confident that the company is well-positioned to leverage them in the evolving market scenario.
The group's wholesale credit businesses, which include real estate, bespoke, distressed credit, and financial institutions financing, have been impacted by various factors such as competitive pressures from banks, regulatory ambiguities around land financing, and recent draft regulations that could increase provisioning requirements for real estate and infrastructure finance.
Information
JM Financial Limited is a leading financial services company in India, offering a range of financial products and services including investment banking, equity, debt, and commodities broking, and wealth management.
JM Financial Limited is a non-banking financial company (NBFC) that provides financial services to individuals, businesses, and institutions. The company has a presence in over 200 locations across India and is listed on the National Stock Exchange of India and the Bombay Stock Exchange.
Frequently Asked Questions
What is the purpose of JM Financial's consolidation of its wholesale and distressed credit business?
The consolidation aims to pivot from an on-balance sheet business model to a diversified originate-to-distribute/syndication model across various asset classes.
How much will JMFL acquire a stake in JM Financial Credit Solutions Limited (JMFCSL)?
JMFL will acquire a 42.99% stake in JMFCSL for Rs 1,282 crore, increasing its stake in JMFCSL from 46.68% to 89.67%.
What is the impact of recent draft regulations on real estate and infrastructure finance?
The draft regulations could increase provisioning requirements for real estate and infrastructure finance to 5% from 0.4%, impacting the return on assets (RoA) for new and existing loans.
Why are real estate developers finding it easier to obtain early-stage financing from AIFs rather than NBFCs?
This is due to competitive pressures from banks which reduced yields in key client segments, regulatory ambiguities around land financing, and other factors.
What is the expected timeline for the completion of the transaction?
The transaction is expected to complete within 3-6 months, pending regulatory and shareholder approvals.
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