DHFL Honours Overdue Debenture Payments Worth Rs 962 Crore
DHFL logo seen through a tyre. (Source: BloombergQuint) 

DHFL Honours Overdue Debenture Payments Worth Rs 962 Crore

Dewan Housing Finance Ltd. has paid out Rs 962 crore in overdue interest payments on its non-convertible debentures, the company said in a notice to stock exchanges on Tuesday.

Last week, the housing finance firm had delayed payments due to a continuing liquidity crunch. While DHFL said it would make the payments within a seven-day “cure period”, credit rating agencies downgraded the company to ‘Default’ grade in anticipation of further payment delays.

So far, though, the company has managed to avoid further delays and has paid the overdue interest.

Last Friday, the company repaid around Rs 276.05 crore towards these NCDs. On Monday it paid another Rs 45.02 crore, it said in a filing. With the additional payments made on Tuesday, the company said it is now current on its payments.

On Monday, the company also managed to redeem about Rs 100 crore in commercial paper.

With this tranche, the company confirms full payment and will seek rating upgrades from agencies. Since September 2018, the Company has managed to make liabilities payment of over Rs. 36,000 crore without availing any fresh funding from any lender.
DHFL Statement

DHFL, in its statement, added that it remains committed to meeting debt servicing obligations “through further asset monetisation plans as well as onboarding of a strategic partner for its business.”

Where Is The Money Coming From?

DHFL continues to rely on securitisation of its retail home loan portfolio, together with divestment across business units, as a way to generate funds.

A senior company official told BloombergQuint that after the collapse of Infrastructure Leasing and Financial Services Group in September last year, the company has not been able to secure any bank or debt market funding. As such, loan-securitisation, while slowing down or almost entirely stopping fresh home loan disbursements, has been the route used to generate liquidity, this official said.

A total of Rs 28,000 crore worth of retail assets have been securitised by the company since September last year. This includes two portfolios of developer loans worth Rs 2275 crore, which have also been sold, the person quoted above said.

The company and its promoters have also signed two divestment deals.

This week private equity firm Blacksone acquired a 97.7 per cent stake in Aadhar Housing Finance for Rs 2,200 crore. Aadhar primarily provides affordable home loans with assets under management of Rs 10,000 crore as of FY19.

The group has also agreed to sell its education loan unit Avanse Financial Services Ltd to an affiliate of Warburg Pincus. On June 6, DHFL informed stock exchanges that the RBI has approved the deal, which is expected to close shortly.

DHFL and the promoter group are also looking to exit the mutual fund business, DHFL Pramerica Asset Managers Pvt. Ltd. by selling its entire stake to its joint venture partner US-based Prudential Financial Inc., the company said in an exchange filing back in December 2018. A stake sale in DHFL Pramerica Trustees Pvt. Ltd. is also planned.

Is This Enough?

Despite this, DHFL will continue to face liquidity pressure.

Care Ratings, while downgrading nearly Rs 1 lakh crore in DHFL debt, said that there continues to be a liquidity mismatch at the firm.

As per liquidity statement as on April 30, 2019, the company is envisaging cumulative cash inflows of around Rs.6,600 crore from June’19 to Aug’19 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 (June 5)

DHFL believes the rating downgrades are unjustified and, in its statement on Tuesday, said it would seek a review.

Shriram Subramanian, managing director at proxy advisory and corporate governance firm InGovern, said that the rating stance is justified even though the company has made payments on its NCDs.

“A default rating is firstly an opinion, secondly it’s a forward looking statement and third, given that it’s a continuous process, the rating reflects the likelihood of the company defaulting on its future debt obligations,” Subramanian said. “Just making one repayment does not mean the likelihood of default reduces for the outstanding or remaining amount,” he added.

As such, rating agencies may wait and watch before they upgrade DHFL. According to the website of CRISIL, the rating agency waits for a period of 90 days after a company has cured a default to ensure that payments have been regularised before upgrading a firm. CRISIL, ICRA and Care Ratings have all downgraded DHFL to ‘D’.

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