How Indiabulls Housing Finance is Deleveraging its Balance Sheet

In the last few years, most NBFCs including those in the housing finance space, have been under pressure at two levels. Firstly, there was an asset liability mismatch in most books as HFCs were borrowing short end and lending for homes, which is normally long end.

Secondly, most NBFCs were facing cash flows problems in servicing their loan repayments, putting them at solvency risk. That was because, in the midst of the liquidity crunch, cash flows were not coming in regularly.

One of the NBFCs that has put in an effort to rectify this problem and deleverage the balance sheet is Mumbai-based Indiabulls Finance. The stock had come under a lot of pressure over NPA concerns, its exposure to Yes Bank and asset liability mismatch.

It has cleaned up its balance sheet to become fully matched in terms of ALM (asset liability management). It has also become significantly positive on cash flows, to the extent that it has also started creating reserves for future redemptions.

To underscore its commitment, Indiabulls Housing Finance recently repaid NCDs worth Rs.7,076 crore ahead of schedule. This included a sum of Rs.6,576 crore borrowed by Indiabulls Housing and its subsidiary ICCL in Sep-16 and Sep-18 respectively.

There was also an NCD of Rs.500 crore issued by Indiabulls Housing way back in September 2011. These NCDs aggregating to Rs.7,076 crore were all repaid ahead of schedule. In dollar terms, the amount repaid is around $960 million.

In addition, Indiabulls has gone one step ahead and created a special redemption reserve for bonds maturing in May 2022 worth $350 million. Indiabulls will transfer 75% of these maturity proceeds to a debt repayment trust managed by IDBI Trustee Company.

The first tranche has already been transferred in Aug-21. The second tranche will be transferred in Nov-21 and the last tranche in Feb-22. Three-fourth of the redemption proceeds will be set aside 3-months ahead of maturity date.

Indiabulls not only wants to prove a point on its solvency but also wants to give comfort and reassurance to bond holders and shareholders that the company’s finances are in fine fettle. This should give a boost to sentiments.