Icra, Crisil downgrade DHFL's Rs 850 cr commercial paper rating to 'default' on delays in debt servicing

Mumbai:  Domestic rating agencies Icra and Crisil Wednesday downgraded the rating on Rs 850 crore worth of commercial paper of Dewan Housing Finance Corporation (DHFL) to ‘default’ from ‘A4’ due to the mortgage lender’s deteriorating liquidity condition. The rating of the company, which defaulted on a debt repayment earlier this week, has been removed from the watch with negative implications by both the rating agencies. Crisil, in a note, said the downgrade to ‘default’ or ‘D’ reflects delays in debt servicing by DHFL on some of its non-convertible debentures (NCDs) because of inadequate liquidity. The payments were due on June 4, 2019. The NCDs are not rated by Crisil. In a separate note, Icra said, “The rating revision factors in further deterioration in the company’s liquidity profile and delays in a meeting scheduled debt obligation on 4 June 2019.” Icra added that given the stretched liquidity profile and limited visibility on fresh funding, the company is unlikely to be able to service its debt obligation with regard to commercial paper programme in a timely manner. [caption id=“attachment_6023581” align=“alignleft” width=“380”]  Representational image. Reuters.[/caption] The company has commercial paper (CP) worth Rs 750 crore maturing in June 2019 with the first repayment on 7 June. “With liquidity inadequate as on date to service debt and visibility very low on timely fundraising, we expect the CP to be in default on maturity,” Crisil said. As on 11 April, 2019, DHFL’s liquidity reserve stood at Rs 2,775 crore (including SLR) and it expects monthly collections of Rs 2,200 crore, going forward. “Against this, the company has scheduled repayments of around Rs 6,900 crore (including unanticipated debt repayments already made till May 10, 2019) from May 01, 2019 to 30 June 2019,” Icra said. It said though the company’s borrowing profile is well diversified, the recent industry-wide stress in liquidity has increased dependence on securitisation (around Rs 17,000 crore raised between 24 September 2018 and 10 May 10 2019). The mortgage lender is dependent on the refinancing of maturing liabilities, given the relatively long tenure of the loans inherent in the housing finance industry. “While reliance on short-term borrowings through commercial papers has declined with the amount outstanding reducing to Rs 850 crore as on 10 May 2019 from Rs 8,715 crore as on 30 September 2018, the company would continue to depend on portfolio sales to meet its debt obligations till fresh funding resumes,” Icra said. The note also said the company’s share of individual housing loans has decreased to 57 percent of the AUM while project loans comprised 17 percent of the AUM, as on 31 December 2018, compared to 61 percent and 15 percent, respectively, as on 31 March 2018. Also, the share of housing loans on the balance sheet declined to 48 percent as on 31 December 2018 from 55 percent as on 31 March 2018 owing to the significant securitisation of the home loan portfolio in the third quarter of FY19. The project loan portfolio remains relatively unseasoned as the project loan book is recently originated and a large portion remains under moratorium. “The company’s ability to maintain the asset quality indicators will be a key rating monitorable, going forward,” Icra said in the note. As of 31 December 2018, DHFL’s gross NPA ratio stood at 1.12 percent and net NPA ratio at 0.8 percent as against 0.96 percent and 0.56 percent, respectively, as on 31 March 2018. Crisil further noted that the current challenges in the overall credit profile of DHFL has not yet impacted collections. As per management, DHFL’s current collection efficiency till March 2019 remains above 99 percent, in line with past trends.