HDFC sells Unitech loan

By: Priyanka Yadav

With Unitech defaulting on loan repayment, housing finance major HDFC on Saturday said it has sold the realty firm's outstanding loan of Rs 869 crore to JM Financial Asset Reconstruction Company (JMFARC).

JM Financial has paid HDFC Rs 155 crore upfront and has issued security receipts to HDFC amounting to Rs 705 crore which will be redeemable over the period of construction, according to the filing. All projects are located in prime locations and financially viable but require additional funding, according to HDFC. "JMFARC will arrange for funds to support and kickstart these projects. Progress of the projects and the resultant cash flows will thereafter be closely monitored," it said. As these projects are financially viable, HDFC said the future cash flows are likely to be sufficient to cover the repayment of the loan with interest thereon.

Gurgaon-based Unitech had a consolidated net debt of Rs 5265 crore at the end of the first quarter of this fiscal. Stating that its current exposure to the Unitech group involves certain projects across various locations, HDFC said "it has assigned the outstanding loans in these projects to JMFARC".

HDFC in a filing to BSE on Friday said, "In the recent past, the Unitech Group has faced sluggishness in the sale of apartments in its projects. This has affected the cashflows of the group, which is in turn has had an adverse impact on the progress of construction and has resulted in irregular servicing of the loans. HDFC has assigned the outstanding loans in these projects to JMFARC ."

HDFC further said that these accounts were standard assets at September end, and turned NPA (non-performing assets) only at the end of October, 2016. In view of irregular payment history, HDFC has made provisions of Rs 240 crore in respect of these accounts. "No further provisioning is required as a result of the sale of the loans to ARC," it added. It further said that after considering the provision of Rs 240 crore already made (34 per cent of SRs), the net carrying value of SRs will be Rs 465 crore.

When loans disbursed by a bank turn bad due to non-payment, banks usually resort to selling these accounts to asset reconstruction companies, which, in turn, purchase the loan amount in less than the actual value from the bank and take over the responsibility of recovering the loan from the client. This way the liability from bank's balance sheet is reduced.