A day after mortgage lender Dewan Housing Finance Corporation Ltd (DHFL) delayed interest payment to the investors of non-convertible debentures (NCD), ratings agency ICRA downgraded the commercial paper (CP) of the lender to junk grade.
The move comes amid the housing finance company negotiating with banks to securitise ₹1,000 crore of loans to avoid default, which will happen it fails to pay its NCD investors in the next seven working days.
ICRA downgraded the rating on the ₹850-crore commercial paper programme of DHFL to D from A4 on Wednesday due to delays in meeting debt obligation. “The rating revision factors in further deterioration in company’s liquidity profile and delays in meeting scheduled debt obligation on June 4, 2019,” ICRA said.
ICRA said DHFL had ₹750 crore commercial paper (CP) programme maturing in June 2019 with the first repayment on June 7, 2019. Given the stretched liquidity position and limited visibility on fund raising, DHFL is unlikely to be able to service its commercial paper debt obligation in a timely manner, the ratings agency said.
While the NCDs are not rated by ICRA, the ratings agency said it was unlikely that DHFL would be able to service that debt too.
“While the mentioned debt [NCD] is not rated by ICRA, 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,” ICRA added.
On Tuesday, DHFL delayed interest payment of about ₹900 crore on non-convertible debentures which were due for repayment. The lender said this was not a default since there was a ‘cure period’ of seven days within which it could service its obligation.
Sources said DHFL was in talks with several banks to securitise loans worth ₹1,000 crore which would enable the company to avoid default and expected to make some payments on Thursday.
IL&FS crisis
The recent industry-wide stress in liquidity post the IL&FS crisis in August last year had increased dependence on securitisation with about ₹17,000 crore raised between September 24, 2018 and May 10, 2019, according to ICRA.
Meanwhile, DHFL, in a statement, said, “The action by the rating agencies is extremely surprising as the company has been making and continues to make substantial efforts in ensuring no defaults on any bonds, repayment of its financial obligations.
“These actions are unwarranted and the company is seeking clarification on the rationale that predicts DHFL’s inability to service pay‐outs on the due dates. Such speculative rating rationale is not adequate.
“Since September 2018, DHFL has repaid close to ₹40,000 crore of financial obligation. To ensure adequate liquidity to meet the repayments, DHFL also sold its strategic retail assets, including Aadhar, Avanse and DHFL Pramerica Asset Managers. The company is committed towards ensuring repayment of all its obligations as well as onboarding the strategic partner for its business.”
