DHFL To Raise Rs 900 Crore Through Its Second Sale Of Developer Loans
DHFL has been among the worst hit by the NBFC liquidity crunch after the IL&FS crisis in September 2018. (Source: BloombergQuint)

DHFL To Raise Rs 900 Crore Through Its Second Sale Of Developer Loans

Non-banking financial company Dewan Housing Finance Corp. Ltd. is set to raise Rs 900 crore through a securitisation transaction of developer loans, according to a ratings note published by Brickwork Ratings Pvt. Ltd.

This is the second developer loan sell-down by DHFL, which has been among the worst hit by the NBFC liquidity crunch after the collapse of Infrastructure Leasing and Financial Services group in September 2018.

The latest transaction includes a loan pool of Rs 2,000 crore to Amaryllis Realtors LLP and Gulmarg Realtors LLP, according to the rating note. The loans were part of a tri-partite agreement with Oberoi Realty Ltd., which used the funds to develop a residential and commercial property in Worli, Mumbai, according to a person familiar with the matter, who spoke on condition of anonymity.

For the securitisation transaction, the loan is split into three tranches.

While the senior tranche is worth Rs 600 crore with a rating of BBB (SO), the first subordinate tranche is worth Rs 300 crore (BBB-SO). The third subordinate tranche, which is unrated, is worth Rs 1100 crore.

The third tranche, which comprises receivables from the underlying property being developed, will be provided as credit enhancement by DHFL, the person cited earlier said. A second line of comfort, for the investors, is provided by “secured nature of the underlying loans”, which are backed by a registered mortgage and hypothetication of properties, this person added.

Credit enhancement is a method whereby a borrower or a bond issuer improves the creditworthiness of a security by offering additional collateral or a third party guarantee.

The loans have been bought by a private equity investor, the person quoted above said. BloombergQuint couldn't confirm the identity of the buyer.

DHFL declined to comment on the story.

Releasing Liquidity

DHFL has Rs 8,400 crore in bond repayments due between April 30 and July but had only Rs 2,775 crore in liquidity on-hand as of April 30, 2019, rating agencies had highlighted last month. While DHFL expects inflows of close to Rs 6,000 crore through repayments and proceeds from loan sell-downs, the NBFC will need to accelerate sales of developer loans to improve its liquidity position, the rating agencies said.

On May 21, DHFL decided to halt premature withdrawals of fixed deposits in order to manage its liquidity position better. It also had to stop taking fresh deposits because its credit rating had fallen below the threshold prescribed by National Housing Bank for deposit taking housing finance companies.

DHFL has raised Rs 17,860 crore through securitisation in the first nine months of FY19, according to an investor presentation dated Feb. 11. So far, most of this has come through the securitisation of retail loans.

In January 2019, DHFL had sold two corporate loans to Oaktree Capital Management for Rs 1,375 crore out of a total exposure of Rs 1,700 crore. Those loans were given to the Bombay Dyeing And Manufacturing Company Ltd and SCAL Services Ltd.

As BloombergQuint had earlier reported, the Rs 1,700 crore loan was split into two tranches. The first tranche of about Rs 1,300 crore was sold to Oaktree, while DHFL retained the subordinate tranche. The first tranche was sold at a yield of 17 percent, but the second tranche that DHFL held on to wouldn't yield anything over and above the principal repayment, the analyst explained.

The second developer loan transaction finalised this week, however, has taken place on more favourable terms, said the person cited earlier.

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