NBFCs, HFCs offload risky realty loans to special situation funds

Saddled with risky loans, non-banking finace companies and firms are selling their portfolios to special situation funds.

were in any case suffering a liquidity squeeze the past two years since ILF&S defaults. The Covid-19 issues and lockdown have made developer loans all the more risky for them.

Though the moratorium on loan repayment is available to developers till August, many of them are expected to struggle in repaying lenders subsequently, experts said.

During the past few weeks, over Rs 6,000 crore of such loans have been sold or refinanced by the likes of Edelweiss’ NBFC arm and Indiabulls 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, some of which need to find a new home, said Ashish Khandelia, founder at Certus Capital and former head of at Indian arm of KKR. Khandelia was involved in Oaktree-DHFL deal.

“A lot of discussions happened last year after 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 deals with Oaktree through non-convertible debentures wherein the latter holds a senior position in the collection of cash flows and the former holds a junior position. The underlying security is mortgaged to both.

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Oaktree Capital, which bought loans worth of Rs 1,375 crore from DHFL in January last year, declined to comment on the matter.

“It will help in generating liquidity and in rebalancing 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 “We are also working on two-three other deals.”

Indiabulls had a loan book of Rs 69,676 crore as on March 2020 and Rs 25,000 crore in developer loans.

ECL Finance, the NBFC arm of Edelweiss group, also sold real estate loans worth Rs 4,000 crore to Farallon Capital and SSG Capital, reports said recently.

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

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

The spokesperson added: “We are in a unique position as we have a strong alternative-asset business (the largest in India) and are quickly able to move wholesale credit book to 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.”

Edelweiss had a wholesale loan book of Rs 8,393 crore as of Q4FY20.

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 4,560 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 are still facing an acute liquidity crunch and are trying to conserve whatever capital is available by being selective on investments. Capital availability for from domestic avenues remains scarce and therefore, selling loan portfolios to PEs/Special situation funds with better liquidity makes 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.

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