Warbug Pincus to acquire Avanse Financial Services from DHFL, WGC

In an effort to reduce its outstanding corporate debt, Dewan Housing Finance Ltd ( DHFL) and Wadhawan Global Capital (WGC) will sell about 80 per cent combined stake in education loan company Avanse Financial Services Ltd to Private Equity group Warburg Pincus for undisclosed sum.

As a part of the deal, Wadhawan Global Capital (WGC) will be selling its entire stake of  49.04% in the company. Also, housing finance company Dewan Housing Finance Corporation, promoted by WGC will also sell its stake in Avanse Financial Services. It holds 30.63 per cent stake in the educational NBFC firm.

This is part of effort by DHFL and WGC to focus on core business of housing finance and exit from other lending activities. They have already singed pact to sale stake in Aadhar Housing Finance Ltd to another Private Equity player Blackstone. Such transactions will help crisis-ridden Wadhawan Group for an undisclosed sum, to reduce its outstanding corporate debt.

Commenting on the development, Kapil Wadhawan, Chairman, WGC said, “The transaction with Warburg Pincus will allow the company to further strengthen their position in the education financing industry. This sale also unlocks the latent value within the WGC Group while reinstating our immediate and long-term focus on our core business.”

Avanse Financial Services is an education focused finance company which started operations in 2013. However, majority of loan portfolio has been created in last two years. Its Assets Under Management increased from Rs 982 crore as of March 31, 2017 to Rs 3134 crore as of Sep 30, 2018. Further, more than 80% of the total portfolio is for a tenor of about 10 years, according to Rating agency Brickwork Ratings.

Ernst & Young LLP (EY) and Prime Research & Advisory Limited were the financial advisors to the company and the sellers on the transaction. Shardul Amarchand Mangaldas & Co acted as the legal advisors to the sellers and company on this transaction.

Last month, another private equity giant—Blackstone-- acquired Aadhar Housing finance(AHFL) from the Wadhawan group. WGC sold its entire 70 per cent stake in the affordable housing finance company to Blackstone. Moreover, DHFL also exited the company by selling its entire 9.15 per cent stake in AHFL.

The transaction with Blackstone was a part of Wadhawan group’s multi-pronged strategy to reduce the corporate debt levels and strengthen their balance sheet. The sale, WGC said, will unlock the latent value within the group while reinstating their immediate and long-term focus on DHFL, the flagship company of group.

Although there are no financial pressures, the company is looking for a strategic investor to ensure that the organisation design reflects their current business imperatives of the company.  

WGC’s flagship company DHFL was one of the worst hit when the beleaguered IL&FS group defaulted on debt payments and there was a situation of liquidity freeze in the sector. The housing finance was marred with the allegation of siphoning off of funds to the tune of Rs 31,000 crore. However, an independent audit report commissioned by the audit committee of troubled DHFL has given a clean chit to the firm on allegations of routing money through shell companies. 

But the report mentioned that some money may have been lent to entities to buy shares of a company floated by the promoters of DHFL.

Wadhawan Global Capital exiting its subsidiaries

• WGC sold its entire stake of 49.04 per cent in Avanse Financial Services to Warbug Pincus

• WGC sold its 70 per cent stake in Aadhar Housing Finance Company to Blackstone

Story so far for WGC and DHFL

• WGC looking to exit its subsidiaries to reduce its corporate debt

• WGC to focus on core business of housing finance through DHFL

• DHFL got a clean chit from an independent audit report

• Report flagged some concerns of misuse of money to buy shares of a company floated by the promoters of DHFL.

• WGC is looking for a strategic investor in flagship company DHFL