Care Ratings Downgrades DHFL’s Rs 1.2-Lakh-Crore Debt
Care Ratings downgraded Rs 1.2 lakh crore worth of bonds, loans and deposits issued by Dewan Housing Finance Ltd. citing the sharp reduction in its share price and the significant rise in bond spreads.
While the stock prices and credit spreads—the difference in yield between two bonds of similar maturity but different credit quality—of non-bank lenders and housing finance companies were hit after a liquidity crisis in September, the recent media news alleging DHFL of “siphoning off” loans further impacted the market sentiment, according to the rating agency’s note. It placed DHFL’s ratings under “credit watch” and said it “will continue to monitor the situation”.
DHFL’s ability to raise resources at competitive rates would be crucial for its profitability and long-term growth prospects.Care Ratings Statement
Shares and debt paper of the non-bank lender tumbled after Bloomberg News reported that the government is examining its accounts following the investigative news portal Cobrapost’s allegations of financial irregularities. DHFL, however, denied any wrongdoing.
The stock lost 78 percent of its value in the past 12 months, in a rout that started due to the defaults by Infrastructure Leasing & Financial Services Ltd. group companies.
According to Care Ratings, another factor weighing on DHFL’s ratings, is its exposure to the low- and middle-income segment with increasing proportion of wholesale loans.
The proportion of wholesale loans (builder loans) increased to 20 percent of the outstanding loan book as of September 2018 from 18 percent as of March 2018 and 14 percent as of March 2017, which is a relatively riskier segment.CARE Ratings Statement
To be sure, DHFL’s loan disbursements plummeted 95 percent in the third quarter of the ongoing financial year. It disbursed Rs 510 crore in loans during the October-December period compared to Rs 13,870 crore in the preceding quarter.
DHFL’s Rating Strengths
Care Ratings said DHFL’s track record of business performance and expertise in lending in the niche market segment of lower- and middle-income group, asset quality and fundraising ability are some of the factors that support its ratings.