Crisil downgrades DHFL’s CP rating to 'default' grade as firm fails to pay interest on bonds
The downgrade reflects delays in debt servicing by DHFL on some of the firm's NCDs.
Mumbai: Rating agency Crisil has downgraded commercial papers (CP) issued by debt laden Dewan Housing Finance Corp Ltd (DHFL) to ‘default’ or ‘D’ category from A4+ after the company missed interest payment on its non-convertible debentures (NCDs) on Tuesday.
DHFL’s downgrade to the default category is the first such by a rating agency. “DHFL has Rs 850 crore of outstanding CPs of which Rs 750 crore is due in June 2019. The first CP maturity is 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,” the rating agency said.
Crisil’s action comes even as DHFL is in talks with financiers to help meet its Rs 1,000-crore-plus obligation within the seven-day grace period and prevent a default. On Wednesday ET reported that UTI Mutual Fund and some private sector lenders, including Axis Bank and IndusInd Bank were among the investors that bought DHFL debt sold last year.
The rating agency highlighted DHFL’s weak liquidity as the main reason for the downgrade. “Scheduled aggregate cash outflows (including loan repayment and securitisation payouts) till July 2019 remains high at an estimated Rs 6,200 crore. CRISIL understands that many of the investors in NCDs with acceleration clauses have not yet exercised their acceleration rights. 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,” the rating agency said.
Crisil said it will monitor the asset quality in loans to small and medium enterprises (SMEs), loan against property (LAP), and real estate developer loan because of the pressure on fund-raising and liquidity at the industry level. “While current delinquencies are not high, if the funding situation for non-banks does not stabilise over time, asset quality challenges could manifest. However, Crisil notes that DHFL's reported asset quality metrics have remained healthy till date.”
DHFL is yet to officially comment on its missed payment on Tuesday. On a standalone basis, it had assets under management (AUM) of Rs 126,720 crore as on December 31, 2018 (mainly through loans in the affordable housing finance segment providing funding to low- and middle-income customers in Tier II and Tier III cities. 57% loans were towards housing, 21% towards loans against property (LAP), 17% towards project loans, and 5% towards loans to small and medium enterprises (SMEs). The company’s gross non performing assets (NPAs) stood at 1.12% in December 2018.
DHFL’s downgrade to the default category is the first such by a rating agency. “DHFL has Rs 850 crore of outstanding CPs of which Rs 750 crore is due in June 2019. The first CP maturity is 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,” the rating agency said.
Crisil’s action comes even as DHFL is in talks with financiers to help meet its Rs 1,000-crore-plus obligation within the seven-day grace period and prevent a default. On Wednesday ET reported that UTI Mutual Fund and some private sector lenders, including Axis Bank and IndusInd Bank were among the investors that bought DHFL debt sold last year.
The rating agency highlighted DHFL’s weak liquidity as the main reason for the downgrade. “Scheduled aggregate cash outflows (including loan repayment and securitisation payouts) till July 2019 remains high at an estimated Rs 6,200 crore. CRISIL understands that many of the investors in NCDs with acceleration clauses have not yet exercised their acceleration rights. 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,” the rating agency said.
Crisil said it will monitor the asset quality in loans to small and medium enterprises (SMEs), loan against property (LAP), and real estate developer loan because of the pressure on fund-raising and liquidity at the industry level. “While current delinquencies are not high, if the funding situation for non-banks does not stabilise over time, asset quality challenges could manifest. However, Crisil notes that DHFL's reported asset quality metrics have remained healthy till date.”
DHFL is yet to officially comment on its missed payment on Tuesday. On a standalone basis, it had assets under management (AUM) of Rs 126,720 crore as on December 31, 2018 (mainly through loans in the affordable housing finance segment providing funding to low- and middle-income customers in Tier II and Tier III cities. 57% loans were towards housing, 21% towards loans against property (LAP), 17% towards project loans, and 5% towards loans to small and medium enterprises (SMEs). The company’s gross non performing assets (NPAs) stood at 1.12% in December 2018.