Bidders tread carefully as NBFC asset sales create a problem of plenty

Offers turn conservative as buyers rule out paying premium, say deals will be delayed by a year if sellers want value; banks aren't getting even 15% dues in the case of DHFL

A large number of asset sales by stressed NBFCs (non-banking finance companies) including by Dewan Housing Finance, Reliance Capital, IL&FS and Shriram stake sale by Piramal, has not only pulled down the valuations of the assets but has also flipped the market in the buyer’s favour.

Bidders say it’s a problem of plenty and their bids for the assets currently on sale will be conservative. "There is no question of paying any premium considering the current economic situation. The sale of assets is likely to be delayed by at least another year if the sellers want value,'' said a prospective bidder.

The bidders of DHFL books have made extremely conservative offers, with banks not getting even 15 per cent of their dues, said a banker close to the development. “Even though the revised offers are expected this week, lenders will have to provide for a huge sum as write off in DHFL. We do not expect bids to be extraordinary and will be still far below the liquidation value set by the valuers,” said a banker close to the development. Barring Piramal, in most of the other cases, the sale process is run by the lenders after a default. 

Apart from the NBFCs asset sale, Yes Bank is also toying with the idea to hive off its Rs 32,000 crore of NPA book into a “bad bank” and is currently in talks with the EY on how to go ahead with the project. Several asset reconstruction companies (ARCs) have been sounded off about selling part of the book.

Bankers said the asset sale is getting hampered as there are too many fire sale chasing “very little cash”.  “May be its time to postpone the sale for the next financial year as the current year has been a complete washout year for M&As of NBFCs and financial assets due to the pandemic,” said the banker.

The recent bids for the DHFL books showed that the bidders are looking at very specific books and are carefully evaluating the assets. The sale of Reliance Capital’s assets, including its stake sale in insurance ventures and mutual fund arms, is currently ongoing and bidders are expected to put in their expression of interest by December 1. “The response may be muted as there are too many assets on sale at the same time,” said the banker.

Bankers said apart from several stressed NBFCs, several large companies operating their NBFC arms are looking to sell their books as NBFC debt is also included in group debt and impact ratings.  “In the months to come, there will be some large companies which would move out of the NBFC segment. This is mainly due to growth slowing down and companies re-looking their portfolio of companies after the Corona pandemic,” said CEO of a NBFC asking not to be quoted.

“We are picking and choosing the best among the books currently on offer,” said a bidder citing an example where Piramal made a bid for DHFL’s retail book which would complement its wholesale book.  “It’s quite clear that only the NBFCs with deep pocket will now survive the current turmoil. So we can expect more such offers in future. We have a lot of patience,” said the bidder.

What's on sale?

DHFL, and individial books

Reliance Cap, stakes in insurance, mutual funds

IL&FS assets

Piramal stake in Shriram cos