Altico Capital India Ltd., a non-banking finance company backed by a set of marquee global investors, has defaulted on interest payment to Dubai-based Mashreqbank PSC.
An interest payment of Rs 19.97 crore was due on Sept. 12, according to a regulatory filing with the BSE. This payment is now in default. The principal amount for the external commercial borrowing on which Altico Capital has defaulted stands at Rs 340 crore, the filing said.
Altico Capital is a real estate-focused NBFC and counts Clearwater Capital Partners, Abu Dhabi Investment Council and Varde Partners among its key shareholders.
The NBFC was chaired by veteran banker Naina Lal Kidwai until Sept. 3, the company said in a Sept. 6 exchange filing. Kidwai resigned from her post on Sept. 3.
“In view of the shareholders having to drive the process and capitalise the company, and my reservations on the strategy and plans for the company, and also my time commitments for board meetings and committees having increased disproportionately—in the last 60 days we have had 14 board and committee meetings, and in addition several informal chats and calls—I find this burden impossible to keep up and I would like to resign with immediate effect,” Kidwai said in the resignation letter—a copy of which BloombergQuint accessed from the Ministry of Corporate Affairs website.
An email sent to Altico Capital on Thursday was not answered.
Real Estate Pressure Spills Over
Like other NBFCs lending to the real estate sector, Altico Capital has also been facing pressure due to a slowdown in sales and a build-up of inventory. Unlike others, Altico’s portfolio is concentrated in real estate, allowing it limited room to manage risk.
On Sept. 12, just ahead of news of the default, CARE Ratings downgraded the NBFC’s rating to B from AA-, citing liquidity constraints and the company’s significant exposure to the real estate sector.
Earlier this month, on Sept. 3, Altico Capital’s long-term credit rating was downgraded by India Ratings and Research to A+ from AA- with a negative outlook. In its rating rationale, India Ratings said Altico Capital has high single-party exposure, which could incrementally add pressure in the event of major defaults given the bleak real-estate environment.
According to data provided by India Ratings:
- About 31 percent of Altico Capital’s loan book went towards early-stage funding of projects.
- Further, the top ten individual exposures accounted for 39 percent of Altico’s loan book. This is equivalent to 90 percent of its net worth.
- The top 10 group exposures accounted for 60 percent of the loan book or 139 percent of its net worth, at the end of FY19.
The operating environment for real estate players has become extremely challenging, with the tepid sales velocity of residential units, especially in the mid and higher ticket segments, and the funding crunch faced by the sector, given the heightened risk aversion of lenders.India Ratings & Research (Rating Rationale For Altico Downgrade Dated September 3)
Paying For Aggressive Growth?
The Altico Capital default comes after a period of aggressive growth.
The NBFC’s loan book stood at Rs 6,905 crore at the end of FY19, up from just Rs 1,562 crore in FY16. The NBFC doubled its loan book in FY17 and expanded it by another 70 percent in FY18. Growth moderated in FY19 as pressures started to build-up in the real estate sector.
Through this period, the NBFC reported modest bad loans.
The gross non-performing assets of the NBFC stood at 1.8 percent at the end of FY19 from NIL in the preceding financial years. India Ratings, however, cautioned that the weak credit profiles of underlying projects could lead to higher NPAs.
The company also sold Rs 295 crore in stressed accounts to asset reconstruction companies In the last quarter of FY19, according to its financial statements. These loan accounts were classified as special mention accounts in the second category, suggesting they were overdue by more than 60 days.
Liquidity Risks
Like its peers, Altico Capital has faced liquidity pressure following defaults by the IL&FS Group in September 2018.
According to India Ratings’ note, Altico’s liquidity position was sufficient to meet only four and a half months of obligations. “Given the tight liquidity scenario, the probability of getting prepayments as envisaged would be low, which could exert further strain on the liquidity,” it said.
According to Bloomberg, Altico has around Rs 300 crore in principal and interest payments on debentures and loans due between Sept. 12, 2019, and Mar. 31, 2020. It had Rs 1,277 crore worth of cash and bank balances on its books as on Mar. 31, 2019.
The company’s total borrowings (including debt securities) stood at just under Rs 5,320 crore at the end of FY19, up from Rs 4,182 crore in the previous fiscal year. As of Sept. 12, the company had Rs 4,361 crore in borrowings from banks and financial institutions.
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