October 11, 2019 / 8:42 AM / 12 days ago

Indian NBFCs turn to overseas loans

* Loans: Bajaj Finance taps largest offshore loan from India’s embattled sector

By Chien Mi Wong

HONG KONG, Oct 11 (LPC) - Indian non-banking financial companies are stepping up their offshore fundraising drive with Bajaj Finance and Tata Capital Financial Services the latest borrowers to turn to overseas lenders amid an ongoing liquidity squeeze at home.

Bajaj Finance has mandated eight banks on a US$575m syndicated loan, the largest debut deal of the year from the NBFC sector, while Tata Capital Financial Services launched a US$135m borrowing last week.

Both three-year loans are debut borrowings targeting yen and US dollar liquidity among international lenders. Japanese banks, in particular, are hungry for higher-yielding assets, and bankers expect the yen option will increase the two borrowers’ chances of success.

“These borrowers will be able to access liquidity beyond the dollar market,” said a Singapore-based loans banker referring to Bajaj Finance and Tata Capital Financial Services. “Similarly, Japanese regional lenders are keen to join deals that offer far better pricing than their domestic market.”

MIXED RESULTS

The latest offshore financings, however, come as India’s non-bank financing sector is reeling from a string of defaults and credit scares that began with missed payments from Infrastructure Leasing & Financial Services in September last year.

Tight onshore liquidity is driving NBFCs into the overseas bond and loan markets in search of funding, but loans from the sector have met mixed results.

A US$250m-equivalent three-year debut loan for retail finance company Fullerton India Credit has attracted 10 banks, while L&T Finance made a lacklustre debut with only one bank joining its US$375m dual-tranche borrowing a few weeks back.

The NBFC liquidity crisis may be getting worse. Among the major players, Dewan Housing Finance defaulted in June, and last month, Reliance Capital and subsidiary Reliance Commercial Finance and Altico Capital India were hit with rating downgrades after missed interest payments.

The Reliance entities are units of embattled Reliance Anil Dhirubhai Ambani Group (ADAG), while Altico counts Clearwater Capital Partners, Abu Dhabi Investment Council and Varde Partners among its shareholders.

According to a Fitch report on October 3, small-to-medium sized NBFCs with large, long-tenor construction finance portfolios have been the most affected compared to the large asset finance and consumer finance companies that are controlled by bigger corporates.

“Following the IL&FS event, NBFCs with larger asset-liability gaps – mainly housing finance and certain wholesale NBFCs – are seeing more challenges in refinancing,” said Jonathan Lee, managing director at Fitch.

PARENTAGE DRAW

Understandably, international lenders have been selective in taking exposure to Indian NBFCs. Strong parentage undoubtedly adds to the appeal, but is not a passport to syndication success.

This was evident in the contrasting outcomes for the Fullerton India and L&T Finance loans.

Fullerton India benefited from the halo of its indirect parent, Singapore sovereign wealth fund Temasek Holdings, while L&T Finance floundered despite the pedigree of its parent, Indian conglomerate Larsen & Toubro.

Furthermore, L&T Finance’s loan had the International Finance Corp as one of the leads on the US$250m portion and sole lender on a US$125m five-year piece.

“L&T Finance had some credit quality issues with exposure to IL&FS and other distressed credits in India’s infrastructure, construction and real estate sectors that lenders were not comfortable with,” said one senior loans banker familiar with its financials.

A research report on September 5 from Emkay Global Financial Services raised “concerns over L&T Finance’s credit quality profile during the current economic slowdown due to its highly concentrated wholesale lending exposures (63% of assets under management) and its retail lending businesses with a relatively shorter operating history”.

Notwithstanding the mixed results, Indian NBFCs continue to troop offshore with several making their loan debuts. Tata Capital Financial Services follows its affiliates Tata Motors Finance and Tata Capital Housing Finance, with all three venturing offshore for the first time.

Last month Tata Motors Finance more than doubled its three-year loan to US$150m from an original size of US$60m, while Tata Capital Housing Finance is in the market for a US$75m 38-month loan, which carries an unspecified greenshoe.

Mahindra & Mahindra Financial Services, a subsidiary of conglomerate Mahindra & Mahindra, closed a debut US$175m three-year loan last month, but did not exercise a US$125m greenshoe.

Also making its debut is Aditya Birla Finance, the financial services arm of conglomerate Aditya Birla Group, which is raising US$75m plus an unspecified greenshoe through a three-year dual-currency borrowing.

LIC Housing Finance, a subsidiary of state-owned Life Insurance Corp of India, and PNB Housing Finance, a unit of state-owned Punjab National Bank, are also tapping offshore lenders with deals totalling at least US$275m.

Reporting By Chien Mi Wong; Additional reporting by Prakash Chakravarti; Editing by Chris Mangham and Vincent Baby

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