Lenders to troubled real estate financier Altico Capital begin debt recast

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Lenders to troubled real estate financier Altico Capital India have begun preliminary work on restructuring debt amounting to over Rs 4,000 crore. Altico, a realty financier backed by private equity (PE) investors, has defaulted on payments towards external commercial borrowings (ECBs). 

It defaulted on interest payment of Rs 19.97 crore on ECBs that it had availed from Mashreqbank PSC. 

The gross principal amount was Rs 347 crore. This is another instance of the company being plagued by problems in the real estate sector. Looking at the situation, the challenges facing Altico are not surprising, according to a senior banker associated with the exercise.

While it may not create a systemic crisis, these defaults do add to the already-negative sentiment prevailing in the market, the executive added. 

The proposal will be taken up under the inter-creditor agreement. Alvarez and Marsal is the advisor for the restructuring exercise. It may take over six months to implement the package once it gets finalised. Altico’s total borrowing from banks and financial institutions stood at Rs 4,361 crore, as on September 12, 2019. Lenders to the firm include HDFC Bank and State Bank of India, who are set to meet on Monday with respect to the exercise.

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On September 3, India Ratings downgraded Altico’s Long-Term Issuer Rating to ‘A+’ from ‘AA-’, with the outlook now at ‘Negative’.

The consistent pressure on the realty sector has led to a weakened operating environment for construction lending. The stretched working capital cycle for real estate borrowers has resulted in volatile delinquencies and tighter funding. This, in turn, has resulted in wider spreads and diluted on-balance sheet liquidity buffers. 

The company is diversifying its portfolio, both in terms of sectors and ticket size. However, it is likely to be reflected in the performance only gradually, said India Ratings. Altico’s loan book is highly concentrated, given the high single-party exposures. The top 10 individual exposures accounted for 39 per cent of the loan book (90 per cent of the net worth). 

The top 10 group exposures accounted for 60 per cent of the loan book (139 per cent of net worth) as of FY19. With such a high concentration, the impact could be disproportionate in the event of any major default.