Banks eye HDFC Bank's loan to Aditya Birla Chem

Amid the slow credit demand in a rising interest rate regime, several public and private sector banks are queuing for the Rs 350-crore loan that HDFC Bank plans to 'down sell'. The loan is a part of the bridge loan that HDFC Bank offered Aditya Birla Chemicals India, a subsidiary of Hindalco Industries, for its acquisition of the chloro chemicals division of Kanoria Chemicals & Industries.

Though the base rate of several banks touched 10 per cent in the recent past, lenders are willing to take a part of HDFC Bank’s loan exposure to Aditya Birla Chemicals at a modest 11 per cent, due to the reputation the parent company enjoys. Despite rating agencies reviewing the credit rating of Aditya Birla Chemicals, banks have shown interest.

In April, Aditya Birla Chemicals arranged Rs 750-crore bridge loans from HDFC Bank at 10.75 per cent to finance the acquisition of Kanoria Chemicals' chloro chemicals division. According to the agreement, the bridge loan would be converted into a long-term debt of eight-nine years' maturity, including one year of moratorium, sources said. HDFC Bank has decided to keep Rs 400 crore loans on its books, while down selling the remaining Rs 350 crore to other banks.

According to bankers, the deal provides an opportunity to the bank to create long-term assets at a time when credit demand is sluggish. “Aditya Birla Group’s strong financials instil confidence that these loans would not turn into non-performing assets. Hence, the credit rating for Aditya Birla Chemicals is not much of a concern,” said a senior official of a private sector bank.

Bank of Baroda appears to lead the race, since the state-run lender is willing to take the entire Rs 350-crore loans on its books. Federal Bank and Karur Vysya Banks are also in the race, along with a few other public and private sector banks.

“While the acquisition of Kanoria Chemicals' assets appears positive, we have to assess the impact it would have on Aditya Birla Chemicals' gearing level. As a result, we have put our rating on the company under review,” said an analyst with a rating agency, requesting anonymity. He added Aditya Birla Chemicals' debts currently carry a rating “higher than A” but declined to specify the details.

“Since the company is part of the Aditya Birla Group, it provides some comfort for banks. In the April-June period, credit demand typically remains sluggish. Hence, banks would also look at an opportunity like this to expand their loan book,” said an analyst with a domestic brokerage.

According to data available with the Reserve Bank of India, bank credit expanded 21 per cent year-on-year at the end of April, compared with 23 per cent year-on-year growth in March.