Indiabulls Housing Finance Ltd (IBHFL) raised ₹2,200 crore from Oaktree Capital pledging part of its home loans to the stressed global asset investor, said two people with direct knowledge of the deal, requesting anonymity.
The transaction should breathe new life into Indiabulls Housing, which has been in talks with investors for several months. The new funds should be used to meet payment obligations.
As part of the terms of the deal, Oaktree will purchase non-convertible debentures (NCDs) which will be sold by Indiabulls Housing, according to the people quoted above. The NCDs will be secured by an underlying real estate portfolio valued at close to ₹4,500 crores, including loan exposures to developers such as Wadhwa Group and Sheth Developers.
A spokesperson for Indiabulls Housing did not respond to an email query. An Oaktree spokesperson declined to comment.
In a similar transaction last year, Dewan Housing Finance Ltd (DHFL), now bankrupt, sold wholesale loans worth ₹1,375 crore to Oaktree to reduce its portfolio of project finance loans and raise immediate cash.
Indiabulls Housing’s business came under pressure, as evidenced by ratings downgrades. In March, Moody’s Investors Service downgraded the home-based financial from B2 to B3, with a negative outlook, citing a difficult fundraising environment. The rating agency ICRA had also lowered the company’s long-term rating from stable to negative. The rating action was driven by Indiabulls Housing’s investment in Yes Bank’s additional Tier I bonds and the ongoing challenge of resource mobilization.
In May, the Indiabulls Group laid off nearly 2,000 staff as part of measures to contain the fallout from the disruption caused by the coronavirus outbreak. The move came on the heels of senior management’s decision to take a 35% pay cut for fiscal 2021. The company’s chairman, Sameer Gehlaut, has decided to forfeit his entire salary for fiscal year, while Vice President Gagan Banga opted for a 75% pay cut. .
Refinancing outstanding debt is part of the first step that the company wants to use to manage financial stress.
The outstanding loan amounted to ₹1,020 billion, as of December 31, 2019, with an average cost of borrowing at 8.8%, according to the housing finance company’s public file.
“Indiabulls is in talks with other private equity investors for a debt refinancing of almost ₹7,000 crores. The second step is to raise funds through preferential issues. The pricing guidelines recently relaxed by the market regulator will make things easier,” said one of the people quoted above.
On Wednesday, the RBI laid out the eligibility criteria for non-bank financiers and mortgage lenders to use a special liquidity scheme approved by the Union cabinet in May.
RBI rules state that non-bank financial companies and housing finance companies must not have net non-performing assets of more than 6% as of March 31, 2019 and funds raised must be used only to extinguish liabilities existing.
“They should (also) have made a net profit in at least one of the last two previous fiscal years of 2017-18 and 2018-19. They should not have been reported in the SMA-1 or SMA category -2 by any bank for borrowings in the year prior to August 1, 2018,” RBI said.