Crisil Downgrades DHFL’s Rs 850-Crore Commercial Paper

Rating agency Crisil downgraded Dewan Housing Finance Corporation Ltd.’s commercial papers for the third time as the housing financier continues to grapple with liquidity concerns.

Crisil downgraded DHFL’s commercial papers worth Rs 850 crore to Crisil A4+ from Crisil A3+, the rating agency said in a statement. At the end of March this year, Crisil had first downgraded the credit rating on this instrument to Crisil A2+ from Crisil A1. It has warned that the debt paper continues to remain under ‘rating watch’ with negative implications.

Non-bank lenders have been under pressure since September after payment defaults by Infrastructure Leasing and Financial Services Ltd. triggered fears of a contagion in the financial market.

“The downgrade is driven by more-than-expected reduction in the company’s liquidity because of further delays in fundraising from sell down of project finance loans and lower inflows from securitisation of non-housing loans,” Crisil said.

DHFL has “readily-available” housing loans on its balance sheet that it could have sold, or securitised, to banks, which would have “propped up” the company’s liquidity levels, it said. But DHFL did not “resort” to securitising these loans.

DHFL’s liquidity level, or assets to meet its current or short-term liabilities, dropped to Rs 2,200 crore at the end of last month from around Rs 4,000 crore in the second week of April.

That too when the company is expected to make large cash outflows worth Rs 8,400 crore till July toward loan repayments and securitisation payouts, Crisil said.

“DHFL’s liquidity levels are expected to remain low with reduced cushion or buffer for upcoming cash outflow,” the rating agency said. “With liquidity weaker than previously envisaged, sensitivity of timely receipt of funds from various initiatives has increased significantly.”

Also, there’s a risk of premature redemption of fixed deposits by its customers or if investors of non-convertible debentures invoke the acceleration clauses in their contracts. That will materially increase the scheduled outflow in the coming months, the rating agency said.

DHFL, however, clarified that a slowdown in the industry’s business hasn’t adversely impacted its debt repayment ability or loan servicing and collections.

Last week, the company said since Sept. 24 it has made more than Rs 30,000 crore of principal and interest payments to its creditors, including fixed deposit holders. It also plans to sell its entire stake in education financier Avanse Financial Services Ltd. to an affiliate of Warburg Pincus. Besides, the company said it would bring in a strategic investor and raise equity of up to Rs 2,000 crore.

“But the visibility on this front is limited and the timely receipt of funds is critical at this juncture,” Crisil said.

Crisil will continue to monitor DHFL’s ability to raise resources quickly and prop up its balance sheet liquidity. Also, its progress on various initiatives and their impact on fundraising, build-up of liquidity and business growth will be key rating sensitivity factors.