MUMBAI: Rating firms CRISIL and ICRA on Wednesday downgraded Rs 850 crore-worth Commercial Paper (CP) of Dewan Housing Finance Corp (DHFL) to default grade after the firm missed interest payments due on Tuesday towards non-convertible debentures (NCD).
DHFL’s CP rating fell from CRISIL A4+ to CRISIL D and ICRA A4 to ICRA D, with both agencies saying that DHFL may default on the first of the CPs when they reach maturity on June 7, out of the total Rs 750 crore-worth CPs maturing in June. Commenting on the asset quality of DHFL, CRISIL said, “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”. It also noted that troubles at the firm have not affected collections yet, but they would be continuously monitored for efficiency and asset quality metrics.
However, liquidity may worsen, with estimated aggregate cash outflows as high as Rs 6,500 crore, whereas monthly loan collections are at Rs 2,200 crore. “CRISIL understands that many of the investors in NCDs with acceleration clauses have not yet exercised their acceleration rights. With this delay... there is heightened risk of acceleration, thereby materially increasing the debt servicing commitments of DHFL,” it said.
Mutual funds are mandated to mark down the value a paper even if there is a delay in debt servicing, and analysts estimate some funds to see Net Asset Value (NAV) erosion of as high as 53 per cent in a single scheme: DHFL Pramerica Medium Term Fund. A spreadsheet shared by Outlook Asia’s Manoj Nagpal on Twitter showed several short, medium and long term debt funds which are invested in DHFL could see NAV erosion between 5 per cent to 53 per cent. There are several Fixed Maturity Plans too that have seen NAV’s falling 6 to 8 per cent.
In May, DHFL had stopped accepting fresh fixed deposits and renewals after its fixed deposit programme was downgraded. It had entered into agreements to sell several of its subsidiaries to get out of the liquidity crunch, including its stake in mutual fund joint venture DHFL Pramarica to its venture partner.