Indian property slump leaves beleaguered banks exposed

A slump in the residential property market is leaving many builders struggling to repay loans to shadow lenders — housing finance firms outside the regular banking sector that account for over half of the loans to developers. (Shutterstock)
Updated 14 October 2019

Indian property slump leaves beleaguered banks exposed

  • While the Indian banking system could be hit by billions of dollars of additional soured debt, the cash crunch in the housing market has levied a toll in human misery

MUMBAI: India might have thought the worst of a bad loans crisis was past, but a severe cash crunch in the real estate industry could augur fresh strife for its banks. A slump in the residential property market is leaving many builders struggling to repay loans to shadow lenders — housing finance firms outside the regular banking sector that account for over half of the loans to developers.

With about $10 billion of development loans coming up for repayment in the first half of 2020, according to Fitch Rating’s Indian division, the fallout could spread to mainstream banks that have lent money to the shadow lenders or invested in their bonds.

Indian financial authorities, including the central bank and government, have said this year that the banking sector’s bad loans — totaling more than $150 billion — are on the decline for the first time in four years after ballooning during a debt crisis. But the number of property developers falling into bankruptcy has doubled during the past nine months, piling pressure on nonbanking finance companies (NBFCs), commonly known as shadow lenders.

Potential implosions of these NBFCs could expose banks, according to 12 banking and real estate sources.

A senior banking industry official, declining to be named due to the sensitivity of the matter, said banks would be affected by the property cash crunch in three ways: Their lending to NBFCs, their own direct exposure to developers and also individuals who do not repay mortgages.

“It will be a triple-whammy,” he said. While the Indian banking system could be hit by billions of dollars of additional soured debt, the cash crunch in the housing market has levied a toll in human misery.

Retired Squadron Leader Krishan Mitroo has paid 90 percent of the cost of his house in Noida, northern India, to developer Jaypee, and the property was supposed to be handed over five years ago. However, Jaypee was forced to delay the project and went into insolvency in 2017.

“The project has been stuck and there is no progress at all. Even the bankruptcy court has not been able to resolve the issue so far, it is just hanging in thin air,” Mitroo said. He did not say how much money he had paid, but properties in that project range from about $56,000 to $140,000.

Several such projects are stuck across the country and buyers are waiting for new developers to take interest and complete them with the hope that their hard-earned money, which has been stuck for years, won’t be lost forever.


Alibaba confirms huge Hong Kong public listing worth at least $13bn

Updated 15 November 2019

Alibaba confirms huge Hong Kong public listing worth at least $13bn

  • Over-allocation options could take the total value to more than $13 billion, making it one of the biggest IPOs in Hong Kong for a decade
  • Alibaba Chief Executive Officer said the group wanted to participate in Hong Kong’s future

HONG KONG: Chinese technology giant Alibaba on Friday confirmed plans to list in Hong Kong in what it called a $13 billion vote of confidence in the turbulent city’s markets and a step forward in its plans to go global.
The enormous IPO, which Hong Kong had lobbied for, will come as a boost for authorities wrestling with pro-democracy protests that have tarnished the financial hub’s image for order and security and hammered its stock market.
Alibaba will offer 500 million shares at a maximum of HK$188 apiece to retail investors, the company said. The number eight is considered auspicious in China.
Over-allocation options could take the total value to more than $13 billion, making it one of the biggest IPOs in Hong Kong for a decade after insurance giant AIA raised $20.5 billion in 2010.
Alibaba had planned to list in the summer but called it off owing to the city’s long-running pro-democracy protests and the China-US trade war. The US and China are now working on sealing a partial trade deal.
Daniel Zhang, Alibaba Chief Executive Officer, said the group wanted to “contribute, in our small way, and participate in the future of Hong Kong.”
“During this time of ongoing change, we continue to believe that the future of Hong Kong remains bright,” he said.
The firm’s shares are already traded in New York. A second listing in Hong Kong is expected to curry favor with Beijing, which has sought to encourage its current and future big tech firms to list nearer to home after the loss of companies such as Baidu to Wall Street.
In the statement, Zhang said that when Alibaba went public in 2014 it “missed out on Hong Kong with regret.”
Mainland authorities have also stepped up moves to attract such listings, including launching a new technology board in Shanghai in July.
The listing comes after the city’s exchange tweaked the rules to allow double listings, while Chief Executive Carrie Lam had also been pushing Alibaba’s billionaire founder Jack Ma to sell shares in the city.
“The listing in Hong Kong will allow more of the company’s users and stakeholders in the Alibaba digital economy across Asia to invest and participate in Alibaba’s growth,” the company said.
It has long been expected to launch a multibillion-dollar stock listing in Hong Kong but appeared to postpone the offering because of political and economic turmoil.
Hong Kong’s key Hang Seng Index rose 0.48 percent in morning trading following the announcement
Chinese shoppers set new records for spending on Monday’s annual 24-hour “Singles’ Day” buying spree, despite an economic slowdown in the country and the worries over the US trade war.
It said consumers spent $38.3 billion on its platforms over that stretch, up 26 percent from the previous all-time high mark set last year.
Alibaba also said it saw record amounts of cross-border sales, underlining its plans to expand globally.
“Globalization is the future of Alibaba Group. We firmly believe the marriage of digital technology and commerce will bring about unprecedented change that will not be limited by borders,” Zhang said.