Is Swamy triggering rise in NBFC yields?

Yields on NBFC bonds are showing signs of surging after BJP MP Subramanian Swamy alleged that Indiabulls Housing, a non-banking financier of homes, was involved in siphoning off funds to the tune of more than Rs 1 lakh crore.

Bonds of stressed financier Dewan Housing Finance (DHFL) also changed hands in two separate secondary-market transactions of Rs 25 crore each on Monday. Those deals yielded 50-51 per cent, compared with 38-39 per cent more than a month ago, dealers said.

“Large overseas intuitional investors are likely to have bought those papers from a domestic house,” said a dealer with knowledge of the deals. The instruments were long-term bonds the company had sold through public issuance last year.

Bond yields rise when prices fall.

Even a few foreign banks reportedly offered to bid Indiabulls Housing Finance bonds at 15 per cent. But there were no sellers (at that yield) after the company denied allegations of funds diversion through the National Housing Bank (NHB) window. Indiabulls Housing said it has no outstanding with NHB, the lender and regulator for home financiers.

“Loans outstanding as on date from NHB to Indiabulls Housing are zero,” Indiabulls Housing said late Sunday evening. “Indiaibulls Housing, in its history, has never taken any loan or refinancing facility from NHB.”

Swamy alleged that the company should be probed by federal agencies for shipping funds out of the country.

“I wish to inform you that Indiabulls Housing Finance and its associates, which many Congress leaders, e.g., P. Chidambaram and BS Hooda have patronised, is heading now for a financial collapse and bankruptcy,” Swamy alleged in a letter circulated on social media.

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Following the start of defaults at infrastructure conglomerate IL&FS last September, NBFCs and home financiers have been struggling to raise money. During the period, their funding costs have surged 150-200 basis points on an average.

Meanwhile, bond deals are limited in an illiquid market.

“Some large overseas investors are offering to buy bonds cheap whenever any negativity hits the market,” said Ajay Manglunia, MD and head-institutional fixed income, JM Financial. “Some existing investors, who may be in a hurry to exit, are seen selling those papers. But there is no panic situation in the market.”

The Indiabulls Housing Finance and Lakshmi Vilas Bank are in the process of merging their businesses.


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