IIFL Finance jumps 8% after Fairfax commits $200 million liquidity support

IIFL Finance staged a recovery on March 7, rising over 8 percent in morning deals. The stock fell 35 percent in the last two sessions in the aftermath of RBI’s decision to ban the company from issuing gold loans.

The sharp recovery in the stock comes a day after IIFL Finance said that Canadian billionaire Prem Watsa has agreed to provide $200 million liquidity support to the company if it faces any funding crunch after the banking regulator clamped down on its gold loan business. Watsa-backed Fairfax India Holdings Corporation holds stakes in IIFL Finance and other IIFL group companies.

In a statement, Fairfax India said, “The RBI’s embargo has raised liquidity concerns amongst the company’s investors and lenders. In response to these concerns, Fairfax India has agreed to invest up to $200 million of liquidity support on terms to be mutually agreed upon and subject to applicable laws, including regulatory approvals (if any).”

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At 9:22 am, IIFL Finance shares were trading at Rs 409.80 on the National Stock Exchange (NSE), up 7.2 percent from the previous close. In the last one year, the stock has fallen 9 percent, underperforming benchmark Nifty 50 which has risen around 26 percent during this period.

The stock exchanges on March 6 revised the circuit limit downwards for IIFL Finance to 10 percent from 20 percent earlier.

Following the RBI ban, brokerage firm Jefferies downgraded IIFL Finance to ‘hold’ from ‘buy’. It also cut the target price to Rs 435 per share from Rs 765 earlier as analysts expect the stock to further.

Jefferies said that the gold loan ban is expected to hurt IIFL’s profit. “The RBI’s order can dent earnings due to rapid unwinding of profitable gold loan book. Given the time of lifting of the ban is uncertain and we assume that the ban would stay for 9 months, we expect assets under management (AUM) to fall 1 percent YoY and 51 percent YoY fall in gold AUM in FY25.”

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