Piramal Capital and Housing Finance is looking to raise as much as $400 million through external commercial borrowings (ECBs) and ease liquidity pressure as domestic lenders are hesitant to lend to the sector, said two bankers familiar with the matter. The company is in talks with a group of bankers that is helping to syndicate the offshore loan, said one of the people cited above.
The pricing of the two-to-five-year loan is yet to be finalised. Typically, such debt has a markup or spread of 200-300 basis points over the dollar-linked London Interbank Offered Rate (Libor), dealers said, citing past deals. However, global investors have turned risk averse with many countries yielding less than zero for their benchmark bonds, said an investment banker.
“Under the current circumstances, any Indian company with a fair share of builder loans has to walk the extra mile to raise overseas credit,” the person said.
Piramal Capital didn’t respond to queries.
The company is struggling due to the current cash crunch in the real estate sector because of its heavy builder loans. It recently sold off a 10% stake in Shriram Transport Finance for Rs 2,300 crore.
Funding Costs at Multi-year Highs
There’s speculation that Ajay Piramal may also exit his investments of 20% in Shriram Capital and 10% in Shriram City Union. Piramal Capital has a wholesale book of Rs 51,436 crore, out of which real estate loans account for Rs 40,160 crore.
Nonbanking finance companies (NBFCs) have been facing a liquidity squeeze after Infrastructure Leasing & Financial Services (IL&FS) defaulted on repayments in September last year. Lenders have shied away from extending loans, prompting NBFCs to scramble for overseas money either through bonds or loans. Shriram Transport Finance and Indiabulls Housing were among the early birds that have gone in for overseas borrowings. Bajaj Finance, Hero FinCorp, L&T Finance, Tata Financial Services, and IIFL Finance are also in talks with overseas banks, ET reported on April 30.
Apart from IL&FS, repayment worries over Dewan Housing Finance and the Essel Group have pushed funding costs at NBFCs to multi-year highs. Spreads on top-rated five-year bonds of Indian nonbanking lenders rose 90 basis points, or 0.9 percentage points, in the past year but have dipped lately. The average funding costs for shadow banks surged as much as 170 basis points between September and April this year. They came off marginally later amid a softer interest rate regime. A basis point is one-hundredth of a percentage point.
Source: Economic Times