Home finance firms sell mortgaged assets as liquidity crunch deepens

US-based PE fund Blackstone bought a marquee property in tony Bandra Kurla Complex area of Mumbai from Radius Developers for Rs 2,600 crore

Housing finance companies are selling or auctioning the marquee assets mortgaged by borrowers as liquidity crunch is deepening in sectors such as non-banking financial institution (NBFC) and real estate. 

Take a look at these deals. Last week, US-based private equity fund Blackstone acquired a marquee property in tony Bandra Kurla Complex area of Mumbai from Radius Developers for Rs 2,600 crore.

In another deal, Mumbai-based developer Runwal group is buying an 8.8-acre land parcel in Borivali area of Mumbai from Cable Corporation of India (CCI) for Rs 550 crore.

Both properties were mortgaged to Indiabulls Housing Finance and both borrowers —Radius Developers, which owns One BKC building, and CCI — did not default though they owed Rs 1,600 and Rs 300 crore to the lender, respectively.

Indiabulls is also auctioning the iconic Palais Royale building in Worli area of Mumbai this week after its promoters Shree Ram Urban Infrastructure defaulted on its debt repayments. Last month, HDFC also auctioned a property belonging to Jet Airways in Godrej BKC building in BKC area for default of Rs 414 crore. 

“Today, lenders are prevailing on asset owners to retire loan obligations and, therefore, asking prime assets to be sold,” said Amit Goenka, MD at Nisus Finance, a Mumbai-based fund manager, which also runs an NBFC. 

Goenka said lenders were shoring up their balance sheets and correcting asset liability mismatch by retiring loans into lumpy assets irrespective of loan tenure.

Vimal Bhandari, vice-chairman of Kirloskar Capital, the NBFC of Kirloskar group, said: “Obviously, there is a lot of stress in the system and monetisation has become important. There is a complete credit squeeze.”

Bhandari’s comments stem from the fact that sectors such as real estate are hit hard after the liquidity crunch in the NBFC came to the fore following ILF&S defaults last year. NBFCs account for more than 60 per cent of developers’ borrowings and most have stopped lending or become extremely selective in lending in the past 10 months. 

Barring the large-listed players, the real estate segment is seeing slower sales and poor cash flows. According real estate research firm Liases Foras, home sales in top eight cities in the country have fallen 1 per cent in fourth quarter of FY19 with National Capital Region (NCR) seeing the highest 21 per cent fall on a yearly basis. Niranjan Hiranandani, managing director of Hiranandani Communities, said that with NBFCs shying away from lending to developers, more distressed opportunities are coming to the market. “But prices are not down and owners are not reducing the prices,” he said. 

Property developers have been hit badly after Rera (Real Estate (Regulation & Development Act, 2016) came into existence. Rera bans pre-sales and mandates that 70 per cent of project proceeds put in an escrow account.

Gagan Banga, chief executive at Indiabulls Housing Finance, said the developer (Radius) chose to sell One BKC to have a sustainable balance sheet. 

“Every company has to realise what’s sustainable debt and then takes steps to get debt to the appropriate levels,” he said.