Fusion Finance To Raise Rs 800 Crore Via Rights Issue Amid High MFI Stress

Fusion Finance Ltd.'s board of directors approved on Wednesday a proposal to raise up to Rs 800 crore through a rights issue, according to an exchange filing. The development comes at a time microfinance institutions are having a tough time with overleveraging of borrowers.

The company aims to raise this amount instead of the one that it had approved in October to raise up to Rs 550 crore through a rights Issue. The partly paid-up equity shares have a face value of Rs 10 each.

The board also approved that the company retains the flexibility and may, at its sole discretion, undertake a preferential issue of equity shares, which will not exceed 20% of the overall size of the rights issue, the filing stated.

The promoters have expressed support for the proposal and have undertaken to ensure the success of the rights issue, according to Fusion Finance.

The microfinance institution has been working on raising funds through a rights issue for some time now amid poor quarterly results and covenant breaches. Fusion Finance has breached various financial covenants with respect to borrowings of over Rs 5,600 crore as of September. This has led to these borrowings being repayable on demand.

These covenant breaches were due to higher levels of bad loans as well as the credit rating downgrade from CARE Ratings, resulting in auditors noting material uncertainty, which may cast significant doubt on the company's ability to continue as a going concern.

This round of fundraising is crucial for Fusion Finance as the company was negotiating with its lenders to obtain a waiver for a period of 12 months. So far, none of the lenders that have exposure to the company have waived their right to demand immediate repayment yet.

However, the management had said during July–September earnings that even at 90% of collection efficiency in the subsequent months, it will be in a position to discharge all its debt obligations.

For the quarter ended September, Fusion Microfinance reported a net loss of over Rs 300 crore due to significantly high credit costs.

Deterioration in asset quality also affected the company's performance, with the gross stage 3 assets rising 395 basis points to 9.4% sequentially and net stage 3 assets increasing 115 bps to 2.4%. The reason behind this is the stress that the microfinance sector has witnessed due to customers taking multiple loans and a significant rise in customer indebtedness level.

Shares of Fusion Finance closed 0.67% higher at Rs 180.10 apiece on the BSE before the announcement, compared to a 0.14% advance in the benchmark Sensex.