NBFCs, HFCs shed risky real estate loans to remain asset light

Topics Coronavirus | NBFCs | Lockdown

In the last couple of weeks, over Rs 6000 crore of such loans have been sold or refinanced by the likes of Edelweiss’ NBFC arm, Indiabulls Housing Finance
Saddled with risky real estate loans, non-banking finace companies and housing finance firms are selling their portfolios to special situation funds.

The liquidity squeeze faced by NBFCs notwithstanding in the last two years since ILF&S defaults in 2018, the Covid-19 issues and lockdown have made developer loans further risky for them.

Though moratorium on loan repayment is available for developers till August this year, developers could struggle to repay money to lenders, experts said.

In the last couple of weeks, over Rs 6000 crore of such loans have been sold or refinanced by the likes of Edelweiss’ NBFC arm, Indiabulls Housing Finance. About Rs 80,000 crore of such loans could be downsold or refinanced this financial year, said bankers who deal in such transactions.

Global funds such as Oaktree Capital, SSG Capital, Farallon Capital have lapped up most of these loans.

About $50 billion (Rs 3.5 trillion) of developer loans are still on NBFC/HFC books, part of which needs to find a new home, said Ashish Khandelia, founder at Certus Capital and former head of real estate at Indian arm of KKR who was involved in Oaktree-DHFL deal.

“A lot of discussions happened last year post the first trade of Rs 1,375 crore by DHFL. But the bid-ask had remained high between sellers and buyers. With covid and other issues, the pace is accelerating. “We continue to work through several of such situations,” Khandelia said.

Recently, Indiabulls refinanced part of its real estate deals with Oaktree through non-convertible debentures wherein the latter holds a senior position in collection of cashflows and the former holds a junior position. The underlying security is mortgaged to both.

Oaktree Capital bought loans worth of Rs 1375 crore from DHFL in January last year.

Oaktree declined to comment on the matter.

“It will help in generating liquidity and rebalance our book which is granular. In one year, we want retail loans to be 90 per cent of our loan book,” said Gagan Banga, vice chairman and MD, Indiabulls Housing FInance.

“We are also working on two-three other deals,” he said.

ECL Finance, the NBFC arm of Edelweiss group, also sold real estate loans worth of Rs 4000 crore to Farallon Capital and SSG Capital, reports said recently.

A Edelweiss spokesperson said that the group has recently finalised a sell-down transaction of Rs 4,000 crore with two global investors in continuation of the strategy to move wholesale book into fund format.

“We intend to sell-down another Rs 3,000 crore of wholesale portfolio in FY21 and plan to bring it down to zero in next two years, become capital light,” the spokesperson said.

The spokesperson further added: “We are in a unique position as we have a strong Alternatives Assets business (the largest in India) and are quickly able to move wholesale credit book into a fund format as planned over a year ago. On the retail front, we remain focused on a capital light tech-enabled co-orgination strategy with Banks.”

IIFL Finance, part of IIFL group, is in talks with investors such as SSG Capital and Apollo Global Management to sell its real estate book of Rs 4560 crore, reports said recently.

However, Balaji Raghavan, managing partner and senior fund manager at IIFL, said no such deal has taken place.

IIFL Finance is in talks with various investors to raise funds and get last mile financing to complete projects, Raghavan said, “We want to be asset light and come up with multiple platforms to invest ,” he said.

Industry experts say selling loans is a good move in the current context.

“Most of the NBFCs are still facing acute liquidity crunch and hence, are trying to conserve whatever capital is available by being selective in investments. Capital availability for NBFCs from domestic avenues remains scarce and therefore, selling loan portfolios to PEs/ Special situation funds with better liquidity makes a lot of sense,” said Vishal Srivastava, president – corporate finance Anarock Capital Advisors.

Srivastava said this in turn is good for the industry as the fresh fund infusion by incoming funds can reignite the stuck projects and provide much needed liquidity to NBFCs at the same time.

Added Vimal Bhandari, vice chariman and chief executive at Arka Fincap: “It is a good development from a stressed assets perspective. Existing lenders would have done deep distressed sales. The buyers (funds) will be able to do focused job on recovering assets and put in proper mechanism for recovery.”

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