Fusion Finance Plans ₹800 Crore Rights Issue to Address Challenges

Fusion Finance Ltd.’s board of directors has approved a proposal to raise ₹800 crore through a rights issue, according to an exchange filing. This comes as the microfinance sector faces financial stress, driven by high borrower indebtedness and covenant breaches on its borrowings.

Details of the Rights Issue

The rights issue will feature partly paid-up equity shares with a face value of ₹10 each, replacing the earlier October plan to raise ₹550 crore. The board has also granted the flexibility to undertake a preferential issue of equity shares, capped at 20% of the total rights issue size if required.

Mounting Financial Pressure

Fusion Finance’s financials have been under strain. As of September, the company had breaches of financial covenants tied to borrowings exceeding ₹5,600 crore, making these loans repayable on demand. Contributing factors include an increase in bad loans and a credit rating downgrade, which flagged material uncertainty about the company.

During Q2 FY25, the company reported a net loss of over ₹300 crore, driven by steep credit costs. Asset quality further deteriorated, with gross stage 3 assets climbing 395 basis points sequentially to 9.4%, while net stage 3 assets increased 115 basis points to 2.4%.

Sectoral Stress & Share Performance 

The challenges aren’t unique to Fusion Finance. The microfinance sector as a whole is struggling with overleveraging among borrowers, many of whom have taken multiple loans. This has led to a huge rise in defaults and strained asset quality.

As of 9:30 AM today, on December 5, 2024, Fusion Finance Ltd.’s stock price stood at ₹187.77, showing around a  4% increase from the previous close. Despite this uptick, the stock has experienced a decline of approximately 68.96% year-to-date. All in all, the ₹800 crore rights issue seems to be important for Fusion Finance to address its financial troubles and regain stability.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.