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Value investor- India mid & small caps

Bhaskar Chakraborty

Thematic (Sector/Industry)

India Financials / Thematic (Sector/Industry)

<ul>
<li>SBI, LIC open the taps to save <a href="https://www.smartkarma.com/entities/8142" target="_blank" data-smartkarma-citation="entities:8142:1">Dewan Housing Finance (DEWH IN)</a> and <a href="https://www.smartkarma.com/entities/13086" target="_blank" data-smartkarma-citation="entities:13086:1">Indiabulls Housing Finance (IHFL IN)</a> from possible default. SBI buys Rs60bn of mortgages from DHFL, LIC subscribes to Rs15bn of 10-year bonds from DHFL. The same play book is repeated for IBHFL with SBI buying a mortgage portfolio and LIC subscribing to its 10-year bonds.</li>
<li>LIC, that in March-2017 bought new 10-year DHFL paper at 8% when the latter’s 10-year paper was quoting at 9.35% causing a stir in the bond market, has settled for sub-10% yield on the current paper.</li>
<li>CP market rollovers have now been managed. However, impending bond maturities will still strain liquidity for both these HFCs. We think both will slow down lending and hold cash to meet the maturities.</li>
<li>As we have highlighted in our earlier notes <a href="https://www.smartkarma.com/insights/india-nbfcs-developer-defaults-to-accentuate-pain-impact-broader-economy" target="_blank" data-smartkarma-citation="insights:25254">India NBFCs: Developer Defaults to Accentuate Pain, Impact Broader Economy</a> and <a href="https://www.smartkarma.com/insights/india-nbfcs-risk-of-default-in-real-estate-exposure-remains-elevated" target="_blank" data-smartkarma-citation="insights:25908">India NBFCs: Risk of Default in Real Estate Exposure Remains Elevated</a>, the next leg of the crisis should manifest among real estate developers who had enjoyed easy liquidity even as their sales contracted over the past 5 years.</li>
</ul>


SBI, LIC open the taps to save Dewan Housing Finance (DEWH IN) and Indiabulls Housing Finance (IHFL IN) from possible default. SBI buys Rs60bn of mortgages from DHFL, LIC subscribes to Rs15bn of 10-year bonds from DHFL. The same play book is repeated for IBHFL with SBI buying a mortgage portfolio and LIC subscribing to its 10-year bonds.
LIC, that in March-2017 bought new 10-year DHFL paper at 8% when the latter’s 10-year paper was quoting at 9.35% causing a stir in the bond market, has settled for sub-10% yield on the current paper.
CP market rollovers have now been managed. However, impending bond maturities will still strain liquidity for both these HFCs. We think both will slow down lending and hold cash to meet the maturities.
As we have highlighted in our earlier notes India NBFCs: Developer Defaults to Accentuate Pain, Impact Broader Economy and India NBFCs: Risk of Default in Real Estate Exposure Remains Elevated, the next leg of the crisis should manifest among real estate developers who had enjoyed easy liquidity even as their sales contracted over the past 5 years.


India Liquidity Update: SBI, LIC Scramble to Prevent Another NBFC Default