SuperTech default risk adds to HFCs' woes amid liquidity tightening worries

Stocks of housing finance companies (HFCs) again came under a bear grip on Wednesday due to a potential default by a corporate account. Major HFCs -- IndiaBulls Housing (IBHF) and Dewan Housing Finance Corporation (DHFL) -- saw their share prices sink 12-14 per cent in Wednesday's session. 

While worries over liquidity tightening have hurt investor sentiment recently, the latest news over possible credit risk from Delhi-based real estate company, SuperTech, has added to the woes. SuperTech was recently downgraded to "D" (default) by Brickwork Ratings due to liquidity problems.  

Though exposure to SuperTech by all HFCs is still unknown, DHFL's spokesperson clarified that it has no exposure, while IBHF has an exposure of around Rs 5-6 billion to the NCR-based real estate developer.  

The IBHF exposure translates to around 2-2.5 per cent of its corporate mortgage loans and about 0.5 per cent of its entire loan book as of September 2018. In other words, it works out to 50-60 per cent of IBHF's gross non-performing assets (NPAs), or bad loans, indicating the possibility of a sharp deterioration in asset quality. This would impact the overall earnings amid the requirement of additional provisioning. Besides SuperTech, a large Mumbai-based realty developer is also reported to be on the path to default.   

However, according to IBHF's spokesperson, all loan accounts of SuperTech are standard as of September. "The servicing of debt facilities is happening through cash flows deposited directly into a dedicated escrow account by either tenants or home buyers. The underlying properties, along with additional collaterals, are exclusively mortgaged and cover the loans several times over," the spokesperson said. 

Meanwhile, the tight liquidity conditions will continue to weigh on non-banking financial companies and HFCs. According to a Macquire report, debt funds, as well as banks, are now more selective when it comes to their NBFC exposures. Further, liquidity is available, but at a higher price. Therefore, near-term growth and profitability pressure remain key concerns, say analysts. 

"We believe that the present phase is turning out to be a momentary crisis of confidence for the NBFC sector and collateral damage from a default by a real estate account can likely have multiple repercussions. The near-term outlook for NBFCs has turned murky and we are cautious on the sector. Some measures by the regulator, reassuring and calming the market about the sector, would be welcome," says Lalitabh Srivastava, AVP at Sharekhan.