Crisil Downgrades DHFL Bonds On Persisting Liquidity Concerns

Domestic rating agency CRISIL has downgraded Rs 850 crore in commercial papers issued by Dewan Housing Finance Corporation Ltd to CRISIL A2+ from CRISIL A1 earlier. The bond remain under ‘rating watch’ with negative implications, hinting at further stress.

“The downgrade is driven by a significantly slower build-up of liquidity vis-a -vis earlier expectations,” CRISIL said in its accompanying release.

While explaining its rationale, the rating agency said that the housing finance company had raised about Rs 2,150 crore between Jan.1 and March 22, as compared with Rs 16,290 crore raised between September 21, 2018 and December 31, 2018. Moreover, DHFL has continued to curtail its disbursements in order to manage its liquidity position, CRISIL noted.

“While DHFL is taking initiatives to address market concerns and increase liquidity, it remains highly sensitive to timely receipt of funds after completion of these initiatives. Further, the spate of events and news regarding DHFL continues and in a confidence-sensitive market, the company's financial flexibility and resource-raising ability remains impacted,” CRISIL said.

Rating agencies CARE Ratings and ICRA Ltd have already downgraded DHFL’s debt in February.

In its statement, the rating agency noted that some non-convertible debentures issued by DHFL have acceleration clauses, linked to rating downgrades. Any exercise of these rights by investors could mean that the housing finance company would face additional redemption pressures. CRISIL said that DHFL is in conversations with investors to avoid this.

To address its liquidity issues, DHFL has announced a divestment of its entire stake in education financier Avanse Financial Services Ltd to an affiliate of Warburg Pincus. Along with this, the company is also taking steps to raise additional funds and increase on-balance sheet liquidity, including securitisation of housing and small and medium enterprise loans, and sell-down part of its developer loan exposures by March 31, 2019. Further DHFL is also seeking a strategic investor, the rating agency noted.

“Progress on these initiatives and timely receipt of funds will remain key rating sensitivity factors,” the statement said.

Separately, CRISIL said that the ratings on DHLF’s short term deposits worth Rs 1,000 crore has been withdrawn at the company’s request since the deposits have been fully repaid.

DHFL has been in focus since earlier this year when news agency Cobrapost alleged that the housing financier had extended loans to companies controlled by its promoters. The company denied these allegations.