DHFL Stops Fresh Deposits, Puts Premature Withdrawals On Hold Temporarily
Dewan Housing Finance Corporation Ltd. has decided to stop taking fresh deposits and halted premature withdrawals from existing deposit schemes as it tries to manage its tight liquidity position and deal with pressure on credit ratings.
The housing finance company would stop taking fresh deposits and renewals of existing deposits, it said in a notice sent out to its depositors and financial planners.
“In view of the recent revision in the credit rating of our fixed deposit program, acceptance of all fresh deposits, as well as renewals, has been put on hold with immediate effect,” the notice said—BloombergQuint has reviewed a copy.
A person close to the company confirmed that the message had been sent out on Tuesday. An email was sent to the company spokesperson on Tuesday evening. The story will be updated with any response.
DHFL’s fixed deposit programme was downgraded by Brickwork Ratings India Ltd. on May 17 to BBB+ from AA-. The rating has been retained on credit watch with negative implications due to the limited build up of liquidity, Brickwork Ratings said in its statement.
In addition to stopping fresh deposits, DHFL also halted premature withdrawals from existing deposits, except in cases of emergency.
Further to help us re-organise our liability management, the premature withdrawal of deposits has also been put on hold. We will, however, continue to honour all premature deposit withdrawal requests in case of any medical or financial emergency, subject to fulfilment of appropriate documentation.DHFL Message To Deposit Holders And Financial Planners
DHFL holds about Rs 10,000 crore in fixed deposits, which make up 10 percent of its total liabilities, according to an investor presentation on the company’s website. Brickwork Ratings, in its rating release, pegged the size of the fixed deposit programme at Rs 12,000 crore.
In its notice, DHFL reiterated that speculation about the company’s credit worthiness is unwarranted.
“We assure you that we stand committed to honouring all our liability payments, and have demonstrated this by repaying liabilities amounting to about Rs 30,000 crore since September 2018, without a single day’s delay,” the notice said.
While DHFL has indeed met all its repayment commitments so far, it faces a tough few months ahead.
Rating agency Crisil, in a note on May 11, said there has been a more-than-expected reduction in the company’s liquidity.
“Liquidity dropped to Rs 2,775 crore as on April 30, 2019 (including statutory liquidity ratio). On the other hand, scheduled aggregate cash outflows (including loan repayment and securitisation payouts) till July 2019 remains high, estimated at Rs 8,400 crore. Exercise of option by investors in non-convertible debentures with acceleration clauses will materially increase the scheduled outflow,” Crisil said while downgrading the company’s facilities.
In a separate note, CARE Ratings said the company expects inflows of Rs 6,600 crore from May 2019 to July 2019 from sources such as loan sales. These inflows, together with the liquidity being held by the company, would go towards meeting meeting the large outflows scheduled until July. CARE also downgraded DHFL’s debt securities due to this tight liquidity position.
To address these liquidity concerns, DHFL has been trying to draw in a strategic investor and sell-down wholesale loans on its books.