Indiabulls Housing Finance is now buying back its slumping bonds

By Anto Antony and Rahul Satija

An Indian shadow bank is offering to buy back its cheapened bonds after an ongoing fraud probe and a prolonged credit squeeze helped push yields as high as 43 per cent last year.

Indiabulls Housing Finance Ltd. will repurchase anything trading at a yield of more than 12 per cent and has already spent 15 billion rupees ($210 million) to buy its local debt in December, Chief Executive Officer Gagan Banga said in an interview at his Mumbai office. The lender has consistently denied allegations of wrongdoing and Banga said the deals aim to correct pricing in an opaque and shallow market.


“Unless the bond markets fully mature, I don’t know the way out,” Banga said. “That’s what we can do to send a strong message, normalize the market.”

Indiabulls’s bonds and shares have slumped since September 2018, when the collapse of an infrastructure financier triggered a squeeze that’s still denying cash to all but the strongest shadow lenders. Authorities are investigating Indiabulls for improper lending and last year rejected its plan to merge with a bank, blocking a path that would have helped both firms raise funds and strengthen buffers.

Policy makers have long tried to deepen India’s debt market and further steps are expected in the budget due Feb. 1. While there are more than 23,000 outstanding corporate bonds in India, only about 350 trades were reported on average each day in 2019 through September, data from the Securities and Exchange Board of India show.

Indiabulls lost its top credit rating in the final few months of 2019 due to the funding squeeze and failure to get regulatory approval for its proposed merger with Lakshmi Vilas Bank Ltd. The Delhi High Court on Feb. 28 will hear a petition to probe Indiabulls on allegations that the company gave “dubious loans” worth billions of rupees to shell companies through firms owned by the group’s founders “to increase their personal wealth.”

Indiabulls’s rupee bond due 2021 traded at a 27.5 per cent yield on Jan. 22, only to fall back to 15 per cent two days later. The lender said it was a “freak trade,” that pushed the yield to 43.04 per cent in October; Bajaj Allianz Life Insurance Co. ended not delivering the debt to Deutsche Bank AG, people familiar with the matter had said at the time.

“It is buybackable if it’s anything above 12 per cent,” Banga said. “I understand my liquidity position better than anyone else. It’s the best utilization of capital. Why will I not do it?”

Over the past two years, Indiabulls has sold its commercial property portfolio to Blackstone Group for a reported 92 billion rupees. A company presentation shows it held 1.1 trillion rupees worth of assets as of Sept. 30; 19.3 per cent of this in the form of liquid instruments, almost four times more than the average of the top five shadow lenders in India.

On Wednesday, Indiabulls offered to prematurely redeem its bonds maturing in February.

“Indiabulls is flexing its sizable cash muscles to take on investors rushing to exit at a time when the shadow banking sector is facing an unprecedented credit squeeze,” said Ajay Bodke, chief executive officer for portfolio management services at Prabhudas Lilladher Pvt.

Going ahead, Banga said he won’t issue bonds maturing in less than five years. This decision, together with fewer loans to the stressed real estate sector, will lower Indiabulls’s credit growth to about 20 per cent in the coming years from 22 per cent before the crisis, he added.

“I used to play tennis. I haven’t touched the racket in two years,” Banga, 44, said. “I can only push myself so much.”