Shares of banks and non-banking financial companies (NBFCs) dropped up to 5 per cent in the morning deals on Friday, a day after Altico Capital India, a lender to real estate companies, said it has defaulted on interest payments to Mashreq Bank of Dubai.
An interest payment of Rs 19.97 crore was due on September 12, as per a regulatory filing with the BSE. The gross principal amount for the external commercial borrowing on which Altico Capital has defaulted stands at Rs 340 crore, the filing said.
Altico further said that its failure to repay the amounts may result in an acceleration of interest repayment / redemption obligations in respect of non-convertible debt securities issued by the company and may trigger a default in their timely repayments.
"We are evaluating options for resolving the liquidity crisis and will be engaging in discussions with various stakeholders for the same," the company added.
Clearwater Capital Partners, Varde Partners and Abu Dhabi Investment Council are investors in this NBFC.The default by Altico comes after a rating downgrade by India Ratings and the resignation of its chairperson and independent director Naina Lal Kidwai, former head of HSBC India, earlier this month.
On September 3, India Ratings and Research downgraded Altico Capital’s long-term issuer rating to “IND A+" from “IND AA-" and short-term issuer rating to “IND A1" from “IND A1+", with a negative outlook.
"The operating environment for real estate players has become extremely challenging, with the tepid sales velocity of residential units, especially in the mid and higher ticket segments, and the funding crunch faced by the sector, given the heightened risk aversion of lenders. Dampening of sales has been higher for Tier II and Tier III developers (excluding the top 15 developers for the industry), who are the target customers for NBFCs. The tightened liquidity has also resulted in shrinkage of borrowing options for the developers, leading to lower portfolio churn, and hence, increased challenges on asset quality," India Ratings had said in the note.
The ratings agency added that Altico’s loan book is concentrated, given the high single party exposures. The top ten individual exposures accounted for 39 per cent of the loan book (90 per cent of the net worth) and the top 10 group exposures accounted for 60 per cent of the loan book (139 per cent of net worth) at end-FY19. With this high concentration, the impact could be disproportionate in the event of any major defaults, the press release added.
"We continue to remain of the opinion that considering the current economic slowdown (domestic as well as global), tighter liquidity and deleveraging trend among borrowers, the situation is expected to remain grave with little scope for improvement," say analysts at Emkay Global.
The brokerage has maintained 'Sell' rating on developer financiers such as L&T Finance Holdings (LTFH) and LIC Housing Finance (LICHFL), along with cautious stance on Edelweiss Financial where they have 'HOLD' rating currently.
At 10:25 am, the Nifty PSU Bank index was trading 2.50 per cent lower at 2,442.95 levels with all the 12 constituents declining. Bank of Baroda, Union Bank, Canara Bank, and Bank of India slipped in the range of 3-4 per cent. Among private banks, YES Bank tumbled 5 per cent, while IDFC First Bank and RBL Bank shed up to 3 per cent.
In NBFC space, Edelweiss Financial Services was trading over 3 per cent lower, followed by Mahindra & Mahindra Financial Services (down 2.95 per cent) and Power Finance Corporation (down 2 per cent).
In comparison, the Nifty50 index was ruling at 10,964 levels, down 19 points or 0.17 per cent.