CHUNG...ISP continues to seek opportunities to grow its loan portfolio — either through acquisitions or mergers. This would include buying existing loan portfolios from other financial institutions.
ISP Finance eyes more acquisitions following $1.2-b deal
ISP Finance Services Limited remains on the hunt for acquisition and merger opportunities even as it completes the integration of a $1.2-billion loan portfolio acquired earlier this year.
The company, which has been aggressively expanding its presence in the microfinance sector, signalled its intention to continue growing inorganically while also exploring capital-raising initiatives to strengthen its financial position.
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“There are new areas in which we intend to expand our product offerings in 202, and we believe that will drive shareholder value. ISP continues to seek opportunities to grow its loan portfolio — either through acquisitions or mergers. This would include buying existing loan portfolios from other financial institutions,” company Chairman Robert Chung told shareholders during the company’s annual general meeting (AGM) on Tuesday.
“The company remains open for dialogue and has engaged the services of an investment bank to structure any potential opportunities that might arise,” he continued.
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ISP’s new-found interest in acquistions or mergers started roughly four years ago when the Microcredit Act was passed with the primary aim of preventing the sector from being used for money laundering and terrorism financing. The sector’s regulation sparked industry-wide discussions about takeovers and partnerships.
With new regulatory oversight by the central bank, several payday lenders were forced to rethink their business models given the high cost of compliance under the Microcredit Act, coupled with surging loan losses due to pandemic-induced defaults. That led to the closure of some microlending companies but concurrently, the market conditions created opportunities for stronger players like ISP Finance to expand.
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Recently, ISP closed on the acquisition of a $1.2-billion loan portfolio from an undisclosed seller to build its lending capacity. The acquisition of the unsecured loan portfolio effectively doubled ISP Finance’s loan book, reinforcing its position in the microfinance market. The company expects the full benefits of this move to materialise by late 2025 and into 2026.
While management has not disclosed details about the seller, company CEO Dennis Smith said that the deal aligns with ISP’s strategy to expand lending while maintaining prudent risk management.
“Because of confidentiality agreements we are restricted as to what we can say about who the loan business was acquired from,” he explained.
Amid the plans to keep its feelers out for acquisition or merger opportunities, ISP is paying closer attention to how it manages debt. The company confirmed plans to refinance a bond maturing in late 2025, as part of its broader strategy to ensure financial sustainability. While details on how the loan acquisition was funded remain undisclosed, Smith assured stakeholders that “our financial strategy is centred around prudent decision-making that allows us to expand without compromising our fiscal responsibility”.
Addressing concerns regarding non-performing loans (NPLs), which stood at 20 per cent of its portfolio in 2023, ISP’s management said it has implemented stricter credit assessments and enhanced monitoring systems.
“We have been quite open in terms of describing the issues that we’ve had over the past two or three years, certainly post-COVID, in terms of our non-performing loans, and we have taken a number of measures to make sure that if we do provide loans, we’re keeping a very close eye on the quality of those loans,” Company Secretary and CFO Diyal Fernando explained.
“That has actually contributed to the loan book being relatively flat but we’ve put in a number of measures internally to make sure that this ratio will come down — and certainly you’ll see that in moving forward,” he continued.
The company is also looking to shore up its capital base. ISP Finance is considering a rights issue, or an additional public offering (APO), as part of its capital-raising efforts. However, the timing of any such move will depend on market conditions.
As for the strategy it will use to increase its capital base, Smith said “naturally, we would go for either of the two, but more than likely an APO”.
