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A Bond Sale That Eroded Rs 8,158 Crore From DHFL’s Market Value In A Day

DSP Mutual Fund sold DHFL’s ‘AAA’ paper at a yield demanded for debt with a higher risk.

Traders work at the New York Stock Exchange (NYSE) in New York. (Photographer: Scott Eells/Bloomberg)
Traders work at the New York Stock Exchange (NYSE) in New York. (Photographer: Scott Eells/Bloomberg)

A credit market scarred by IL&FS group defaults spooked equity investors, and Dewan Housing Finance Company Ltd. bore the brunt.

The mortgage lender’s shares today tumbled after reports about the sale of its bonds. DSP Mutual Fund had on Wednesday sold the AAA-rated paper at a yield of 11 percent—usually demanded for a paper with a higher risk and rated a few notches lower on credit quality.

Panic-struck investors dumped shares of Dewan Housing Finance which plunged as much as 60 percent today. The stock recouped some of the losses to close 42.5 percent lower. Still, it was DHFL’s worst day on the bourses yet as it lost Rs 8,158 crore in market value.

“It’s not that we are the only ones that sold that day and the quotes that were coming were at around 10.25-10.50 percent,” Hemindra Kothari, chairman of DSP Mutual Fund, told BloombergQuint in an interview. “We sold nearly Rs 300 crore of debt paper on Wednesday at a yield of around 11 percent. We continue to hold DHFL paper worth Rs 900 crore.”

Lakshmi Iyer, chief investment officer-debt at Kotak Mutual Fund, said yields for non-bank lenders, including housing finance companies, have been hardening in the last few weeks after Infrastructure Leasing and Financing Services Ltd. defaulted on commercial paper due to cash crunch. This, she said, has tightened the rates across segments in the bond market.

DHFL’s management rushed to control damage. Kapil Wadhawan, its chairman and managing director, assured investors that his company’s liquidity and other fundamentals remain strong. Attributing the panic to rumours, he said, “The drop (in share price) shows complete disregard for company fundamentals.”

Kothari agreed. “There is no (negative) information that we have on the company (DHFL) up till now,” he said. “People speculate, and I can’t prevent people from speculating.”

We are very unhappy that it has happened like that and there was no reason to stab somebody. There is nothing against DHFL and they are a good housing company.
Hemindra Kothari, Chairman, DSP Mutual Fund
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DSP Mutual Fund’s assets under management fell from Rs 1,11,912 crore in August to Rs 1,06,245 crore on Sept 19. due to redemption on the back of advance taxes and goods and services tax, said Kalpen Parekh, its chief investment officer. “Our deal (to sell DHFL bonds) was to meet payment obligations next week.”

To quell any speculation about DSP Mutual Fund facing cash crunch, Kothari said, “We have enough liquidity in liquid, short-term and long-term funds.”

In the last few weeks, he said, the fund has been taking position on interest rates by bringing down the maturity tenure of its debt portfolio across its schemes. “We are one of the most conservative houses who believed interest rate would move up; it has already moved up, and we have proved ourselves right.”

In that direction, according to Parekh, DSP Mutual Fund has reduced exposure to multiple issuers, not just DHFL.

Watch the interview with Hemindra Kothari and Kalpen Parekh.