Edelweiss financial arm raises Rs 3,000 crore in first half of FY20

Edelweiss Financial Services Group has raised Rs 3,000 crore, excluding commercial paper, in the first six months of H1FY20 as compared to about Rs 7,600 crore in the same period in 2018-19.
Rating agency CRISIL said given the current environment, with lenders exercising caution, the Edelweiss Group has witnessed a reduction in incremental funds raised post-September 2018. There has also been a rise in the borrowing cost.

Going forward, incremental fund raising is expected to improve with fresh bank sanctions (for credit) in the pipeline. The increase in securitisation/ assignment volumes and the group’s plan to start tapping capital markets (including retail NCDs) is expected to help in raising resources.
The overnight on-balance sheet liquidity (including cash, liquid investments and treasury assets) of the group stood at around Rs 4,200 crore as on September 26, 2019. This excludes other liquid assets (investments, securities-based lending book), which can be accessed if necessary — this stood at around Rs 4,600 crore.
Meanwhile, CRISIL said it had downgraded the rating for Edelweiss Housing Finance Ltd’s long-term debt instruments from “AA” to “AA-” rating for commercial paper have been reaffirmed at “A1+”.
CRISIL said it had factored in the group’s ability to raise capital as demonstrated even in the current market environment. In August 2019, the Edelweiss Group announced that Kora Management, a US-based investment firm, will invest around Rs 525 crore ($75 million) in the advisory business, Edelweiss Global Investment Advisors (EGIA).
EGIA includes the businesses of asset reconstruction, wealth and asset management and the institutional client group. In addition to this investment, Kora also plans to invest an additional Rs 350 crore ($50 million) into the group.
The group has said it planned to raise additional capital in EGIA of up to Rs 525 crore ($75 million), excluding the investment by Kora and is in talks with investors for the same.
Reported asset quality metrics witnessed an uptick with overall gross non-performing assets (GNPA) ratio at 2.3 per cent as on June 30, 2019, compared to 1.9 per cent as on March 31, 2019.
The loan book remains chunky, with about 50 per cent of the overall portfolio towards wholesale lending (of which 67 per cent is towards real estate). Further, a sizeable proportion of the wholesale book is under moratorium with bullet or staggered repayments.
While the group follows sound credit appraisal and risk management practices, it has adequate collateral cover for its wholesale loans. The group has built strong recovery capabilities, asset quality in the past was also supported by an active refinance market, particularly for the real estate loans.

M-cap erosion: Anil Ambani-led Reliance Group firms recommend legal action

A day after accusing L&T and Edelweiss entities of causing huge market value erosion by "illegal and motivated" sale of their pledged shares, Anil Ambani-led Reliance Group Saturday said boards of its three listed firms have recommended "all appropriate legal steps" to protect shareholders' value.
In separate regulatory filings, Reliance Capital, Reliance Infrastructure and Reliance Power said their respective boards met on Saturday to review the events of last week, leading to a sharp fall in their market capitalisation and destruction of wealth.

L&T Finance and Edelweiss Group have refuted the allegations and have counter-alleged Reliance Group of failing to make timely payments, which they said necessitated sale of pledged shares.
In its filing, Reliance Capital said its over 7 lakh shareholders have been impacted by what it termed as "illegal, motivated and unwarranted actions of L&T Finance".
The financial services arm of Reliance Group said its board has recommended and approved that the company take all appropriate legal steps to protect and enhance the value of all its stakeholders, especially its over 7 lakh retail shareholders.
Reliance Power separately said its board also reviewed the events leading to a sharp fall in market capitalization and destruction of wealth due to "illegal, motivated and unwarranted actions of L&T Finance Limited and Edelweiss Group impacting its over 3.1.75 lakh shareholders".
Its board also recommended and approved "all appropriate legal steps to protect and enhance the value of all its stakeholders, especially the over 31 .75 lakh retail shareholders of the company".
ALSO READ: Sale of pledged shares by L&T Finance, Edelweiss illegal: Reliance Group
Reliance Infrastructure blamed L&T Finance Limited for market value erosion, saying it has impacted its over 8 lakh shareholders and said its board has therefore recommended and approved all appropriate legal steps.
In its statement on Friday, Reliance Group had alleged that some NBFCs, "substantially L&T Finance and certain entities of Edelweiss Group, have invoked pledge of listed shares of Reliance Group and made open market sales of the value of approximately Rs 400 crore from February 4-7".
"The illegal, motivated and wholly unjustified action by the above two groups has precipitated a fall of Rs 13,000 crore, an unprecedented nearly 55 per cent, in market capitalisation of Reliance Group over just these four short days," it had said.
The group said the actions have caused substantial losses to 72 lakh institutional and retail shareholders, and harming the interests of all stakeholders.
Further, the group said that Reliance Capital, Reliance Infrastructure and Reliance Power as well as their various subsidiaries are performing satisfactorily on all operating parameters, and there is no change whatsoever on any aspect as compared to the position prevailing prior to these sales.
Refuting the allegations, L&T Finance said it had granted loans against pledge of shares to Reliance ADAG Group companies.
"As per loan and pledge agreements, borrower did not cure various events of defaults including providing margin for shortfall in the stipulated security cover.
"Despite various notices in the past few months, events of defaults continued. Consequently, L&T Finance enforced its rights of invocation and sold pledged shares to the extent of its outstanding dues by following the due process of contract and law," it said in a statement.
ALSO READ: Reliance Group accuses L&T Finance, Edelweiss of 'illegal' actions
While noting that the allegations as "unfounded, baseless and false", Edelweiss Group said it had granted credit facilities against pledge of shares to Reliance ADAG Group.
Edelweiss Group said it has reached out numerous times to Reliance ADAG Group to address concerns on shortfall in margins and resultant fall in collateral valuation.
"Despite our best efforts, not only did Reliance ADAG Group fail to address any of the concerns raised by Edelweiss Group, but also continued to breach contractual obligations," it said in a separate statement.
On February 4, there was a sharp drop in the prices of Reliance ADAG group shares, which led to further erosion in the collateral value, Edelweiss said, adding that it also gave due opportunity for remediation.
"Since there was no response from Reliance ADAG Group, it necessitated liquidation of the collateral as per the agreed contractual terms. Throughout this process, Edelweiss has acted in a lawful and responsible manner," it added.

2019 elections mere 'interruptions', stocks will climb in 2019: Edelweiss

While investors in India are worried about upcoming elections and threats to economic expansion, it’s not yet time to lighten up on equities, according to Edelweiss Financial Services Ltd.
The polls are mere “interruptions” that won’t disrupt the nation’s economic structure or business cycle, analysts led by Aditya Narain wrote in a note earlier this week.

Political uncertainty is emerging as the key risk as Prime Minister Narendra Modi’s Bharatiya Janata Party faces elections in five states before a national vote to be held by May. Some opinion polls are predicting a win in Rajasthan for the main opposition Congress, and a close contest in Madhya Pradesh and Chhattisgarh -- both of which are currently ruled by the BJP. The results, due on Dec. 11, may determine how Indian assets end 2018.
Edelweiss is urging investors to focus on the second half of next year -- a period that may see optimism return and the business cycle kicking into high gear. The NSE Nifty 50 Index may end 2019 at 11,800, about 11 percent higher than Tuesday’s close, the brokerage said.
“Don’t split hairs on India’s macros, earnings and valuations -- split 2019 into two halves,” the analysts wrote. “The second half should be a smoother ride.”
Expectations of further rate increases by the Reserve Bank of India have weakened as the country’s retail inflation in October eased to a 13-month low and oil -- India’s top import -- slumped into a bear market. The rupee’s 15 percent decline against the dollar this year is “probably an over reaction,” and the cooling in crude prices paves the way for a rebound, the brokerage said.
Edelweiss recommends investors tilt their portfolio toward defensives -- large-cap banks, consumer staples, technology firms and drugmakers -- and keep an eye on opportunities the increased volatility may throw up in the run up to general elections.
There’s one caveat to Edelweiss’ 2019 outlook. A scenario where an alliance of regional parties take power will compress the valuation premium to other developing markets, the brokerage said. The S&P BSE Sensex trades at 20 times one-year forward earnings, versus 11.5 times for the MSCI Emerging Markets Index.
“An unstable government shouldn’t disrupt the business cycle -- but valuation generosity it will,” the analysts wrote.