CRISIL, ICRA Downgrade DHFL’s  Commercial Paper To Default
DHFL Building in Mumbai. 

CRISIL, ICRA Downgrade DHFL’s Commercial Paper To Default

Ratings agency CRISIL Ltd. and ICRA Ltd has downgraded Dewan Housing Finance Corporation Ltd’s commercial paper programme citing liquidity concerns, a day after the non-bank lender delayed interest payments to investors.

In a ratings note issued on Wednesday, CRISIL downgraded Rs 850 crore worth of commercial paper issued by DHFL to Default or ‘D’ from its earlier rating of ‘A4+’. The rating agency said that Rs 750 crore in commercial paper is payable in June 2019 and the company may not have adequate liquidity available to make repayments. The first CP matures 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 Ratings Note

ICRA, too, downgraded DHFL’s commercial paper programme to D citing similar concerns.

The rating revision factors in further deterioration in company’s liquidity profile and delays in meeting scheduled debt obligation on June 4, 2019, the rating agency said. “While the mentioned debt is not rated by ICRA, given the stretched liquidity profile and limited visibility on fresh funding, company is unlikely to be able to service its debt obligation with regard to commercial paper programme in a timely manner,” ICRA said.

DHFL’s commercial paper outstanding has reduced from Rs 8,715 crore as on September 2018 to Rs. 850 crore as on May 10, 2019.

According to CRISIL, DHFL’s scheduled aggregate cash outflows (including loan repayment and securitisation payouts) till July 2019 remain high at an estimated Rs 6,200 crore.

The rating agency added that some of the non-convertible debentures issued by the company have “acceleration clauses”, which have not yet been exercised. Such clauses allow investors to seek early repayment of dues under certain conditions, such as delayed payments on other debt instruments.

With this delay, CRISIL believes there is heightened risk of acceleration, thereby materially increasing the debt servicing commitments of DHFL. DHFL estimates collection from loan assets at Rs 2,200 crore per month.
CRISIL Ratings Note

On Tuesday, the housing-financier delayed repaying interest on its non-convertible debentures but said that payments would be made within seven days.

“The company is taking all steps necessary and shall ensure that the payment fallen due by way of interest is paid within the above mentioned Cure Period of seven (7) working day. Hence this is a delay and not default,” DHFL said in a statement.

Building Pressure

DHFL has been facing liquidity problems since September when defaults by the IL&FS Group triggered a credit crisis. Allegations of siphoning funds in January added to its troubles. In February, Harshil Mehta stepped down as chief executive officer but stayed on as executive president of its retail business.

Last month, CARE Ratings and CRISIL downgraded the company’s debt instruments, which made it even tougher for the company to raise fresh funds from the debt markets. It has so far relied on securitisation of retail loan assets and bank lines of credit to meet its liquidity needs.

On May 21, the mortgage lender had said that it will temporarily stop taking fresh deposits and won’t allow deposit holders to withdraw prematurely in order to manage liquidity better.

It has now seen its commercial paper programme downgraded to D.

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