Rating agencies Crisil, Care Ratings and ICRA have downgraded the rating on Dewan Housing Finance Corporation Limited (DHFL) to the ‘D’ category indicating that certain debt instruments of DHFL are in “default or are expected to be in default soon”.
Care Ratings said it has downgraded DHFL’s bank facilities of Rs 42,713 crore, non-convertible debentures of Rs 46,655 crore, fixed deposits of Rs 8,940 crore and subordinated debt of Rs 2,205 crore to the ‘D’ category. The total liabilities of DHFL downgraded to the D category amount to Rs 102,563 crore, it said.
The downgrade of DHFL is expected to exacerbate the already parlous liquidity situation in the non-banking financial companies (NBFC) sector.
Care Ratings said the rating revision takes into account the recent instance of delay in servicing of obligations with respect to some of the non-convertible debentures by DHFL due to prolonged liquidity stress.
“The liquidity profile of the company continues to remain stressed on account of delay in identification and induction of strategic investor and limited progress on generating additional liquidity mainly through builder loan book sell down and securitisation. The ratings have been removed from credit watch with negative implications,” it said.
“There has been a deterioration in liquidity profile of DHFL with cash and liquid investments decreasing from Rs.4,668 crore (including SLR) as on March 31, 2019 to Rs 2,775 crore (including SLR) as on April 30, 2019. As per liquidity statement as on April 30, 2019, the company was envisaging cumulative cash inflows of around Rs 6,600 crore from June 2019 to August 2019 as against scheduled cumulative cash outflows of around Rs 10,780 crore during the same period thereby reflecting a negative cumulative mismatch of around Rs.4,180 crore,” Care Ratings said.
Crisil has downgraded commercial papers (CP) issued by DHFL to ‘default’ or ‘D’ category from A4+ after the firm missed interest payment on its NCDs on Tuesday. “DHFL has Rs 850 crore of outstanding CPs of which Rs 750 crore is due in June 2019. The first CP maturity is on June 7, 2019. With liquidity inadequate as on date to service debt and visibility very low on timely fund raising, Crisil expects the CP to be in default on maturity,” Crisil said.
Rating firm ICRA has downgraded the rating on the Rs 850-crore commercial paper programme of DHFL to ‘ICRA D’ from ‘ICRA A4’. The rating revision factors in further deterioration in company’s liquidity profile and delays in meeting scheduled debt obligation on June 4, 2019. “While the mentioned debt is not rated by ICRA, given the stretched liquidity profile and limited visibility on fresh funding, the company is unlikely to be able to service its debt obligation with regard to commercial paper programme in a timely manner,” ICRA said. “The company has Rs 750 crore commercial paper (CP) programme maturing in June 2019 with first repayment on June 7. Given stretched liquidity position and limited visibility on fund raising, the company is unlikely to be able to service its debt obligation with regard to commercial paper programme in a timely manner,” it said. Though the firm’s borrowing profile is well diversified, recent industry wide stress in liquidity has increased dependence on securitisation. Moreover, DHFL is dependent on the refinancing of maturing liabilities, given the relatively longer tenure of loans inherent in housing finance industry, ICRA said.
While reliance on short-term borrowings through commercial papers has declined, the company would continue to depend on portfolio sales to meet its debt obligations till fresh funding resumes, ICRA said. DHFL reported a net fixed deposit outflow of Rs 1,356 crore during September 24, 2018 to December 31, 2018. The share of housing loans on balance sheet declined to 48 per cent as on December 31, 2018 from 55 per cent as on March 31, 2018 owing to the significant securitisation of home loan portfolio in Q3 FY2019.
“The project loan portfolio remains relatively unseasoned as the project loan book is recently originated and a large portion remains under moratorium. DHFL’s ability to maintain asset quality indicators will be a key rating monitorable, going forward,” it said.
DHFL had a loan portfolio of Rs 91,930 crore as on March 31, 2018. The housing finance firm has total asset size of Rs 1,07,436 crore as on March 31, 2018.