Mon 07/27/2020 05:33 AM
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Indiabulls Housing Finance is in talks with investors to raise further funds against its loans to real estate developers, as well as portfolios of retail loans, said three sources with direct knowledge.

The non-bank financing company (NBFC) is looking to raise funds against a second tranche of loans to real estate developers worth up to INR 100 billion ($1.3 billion), said one of the sources and another source with knowledge.

Earlier this month, Reorg reported that Indiabulls had raised as much as INR 22 billion ($294 million) from Oaktree Capital Management against a pool of loans to real estate developers worth around INR 40 billion.

Indiabulls is in talks with investors including Deutsche Bank, Oaktree, SSG Capital and Brookfield to raise capital against its real estate book exposure said one of the sources and a separate source with direct knowledge, while Deutsche Bank is also negotiating a potential private deal to buy Indiabulls’ retail loans, one of the sources said.

Plans for the loans of real estate developers could include purchasing loans using an Alternative Investment Fund (AIF), which would subscribe to non-convertible debentures issued by the real estate developers, two of the sources said.

India’s capital market regulator Securities and Exchange Board of India (SEBI) on July 22 said it was awaiting approval from banking regulator the Reserve Bank of India (RBI) on a proposal which will allow alternative investment funds (AIFs) to directly purchase stressed loans from lenders.

Farallon Capital and SSG Capital are in discussions to form an Alternative Investment Fund (AIF) to acquire loans of around INR 40 billion from ECL Finance, NBFC arm of Edelweiss, as reported.

As of April 2020, about 50% of the aggregate assets of private NBFCs and housing finance companies (HFCs) were under the moratorium announced by the RBI on March 27, according to a financial stability report released by RBI on July 24.

The assets under moratorium are dominated by wholesale customers and real-estate developers, although retail portfolios in the micro-loans and auto loan segments have also been affected, according to the report.

Stress tests conducted by the Reserve Bank of India (RBI) revealed that about 11% to 20% of the NBFCs would not be able to comply with the minimum regulatory requirement of a capital adequacy ratio of 15%, according to the same July 24 report.

As market confidence wanes, the share of long-term market debt through non-convertible debentures (NCDs) in total borrowings of the NBFC sector declined to 40.8% at end of December 2019, from 49.1% at end of March 2017, according to the same RBI report. The consequent funding gap was met through bank borrowings, which rose to 28.9% from 23.1% of total borrowings, the same report shows.

Deutsche and Oaktree declined to comment. Indiabulls, Brookfield and SSG Capital did not respond to requests for comment.

Read our coverage of Indiabulls Housing Finance HERE.

-- Dipika Lalwani, Nidhi Pandurangi
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