Emkay Global has reiterated its sell call on developer financiers such as L&T Finance Holdings and LIC Housing Finance after another unlisted non-banking finance company (NBFC) Altico Capital defaulted on interest payment on overseas loans. The brokerage also has a cautious stance on Edelweiss Financial, where it maintained a hold rating. Shares of L&T Finance Holdings fell 4.31 percent to Rs 92.05, LIC Housing Finance dropped 2.11 percent to Rs 397.60 and Edelweiss Financial Services lost 2.89 percent to Rs 104.30, at the time of writing this copy.
Altico Capital, an NBFC with more than Rs 4,000 crore of outstanding loans, has missed interest payments of Rs 20 crore on an overseas loan taken from Dubai-based Mashreq Bank. Clearwater Capital Partners, Varde Partners and Abu Dhabi Investment Council are investors in Altico. Its loan book of Rs 6,900 crore (as of June 2019) has exposure to real-estate developers.
In terms of life cycle, 31 percent (against 28 percent in H1FY19 and 26 percent in FY18) of the loan book was attributable to early-stage funding of projects (as of July 2019), and about 70 percent of the loan book was under moratorium (as of June 2019)," Emkay said. Earlier, the company's chairperson Naina Lal Kidwai, former head of HSBC India, stepped down citing a personal reason.
A few months ago, auditing firm PWC resigned from Altico too. Emkay said the company has a combined exposure (along with KKR and Edelweiss) of Rs 900-1,000 crore to SARE Homes, promoted by London-based Duet Group, which was facing a severe cash crunch due to unsold inventory.
The company has taken over control of Ramprastha SARE Realty, Gurgaon, and SARE Realty, Chennai GST, while Edelweiss has assumed control of SARE Samaag Reality, Ghaziabad, and SARE Jubilee Shelters, Chennai, it added. The brokerage said Altico had an initial exposure of Rs 430 crore to Supertech in NCR, and it more recently infused Rs 100 crore into Pharande Group, a struggling developer based in Pune.
Emkay is of the opinion that considering the 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. Non-banking finance companies got caught in a bear trap in September 2018 when the cash crunch hit IL&FS, which defaulted on interest payment. The crunch was so severe that NBFC, non-NBFC companies and companies having exposure to defaulters hit badly with DHFL, Yes Bank, Cox & Kings etc, traded far below their highs.
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