CRISIL downgrades rating on DHFL commercial paper over liquidity concerns

Flags concern on dwindling liquidity; stock down 4.6%

CRISIL has downgraded rating on the commercial paper of Dewan Housing Finance Corporation Limited (DHFL) from “A3+” to “A4+” on concerns over reduction in liquidity. The rating continues to be on 'Rating Watch with Negative Implications'.

DHFL's stock closed 4.64 per cent lower at Rs 110.95 on BSE.

The downgrade is driven by more-than-expected reduction in DHFL’s liquidity due to further delays in fund raising from sell down of project finance loans and lower inflows from securitisation of non-housing loans, CRISIL said in a statement on Monday.

Additionally, DHFL, as a strategic decision, did not resort to securitisation of readily available housing loans to prop up the liquidity levels. There are also higher-than-scheduled liability repayments.

There is heightened additional risk of unscheduled early redemption of Non-Commercial Debentures (NCDs). On the other hand, there is low visibility regarding timely fund raising. Consequently, DHFL's liquidity levels are expected to remain low with reduced cushion or buffer for upcoming cash outflow.

With liquidity weaker than previously envisaged, sensitivity of timely receipt of funds from various initiatives has increased significantly. Its liquidity dropped to Rs 2,775 crore as on April 30, 2019 (including Statutory Liquidity Ratio (SLR) pool). On the other hand, scheduled aggregate cash outflows (including loan repayment and securitisation payouts) till July 2019 remains high, estimated at Rs 8,400 crore. Exercise of option by investors in NCDs with acceleration clauses will materially increase the scheduled outflow, CRISIL added.

DHFL's management continues to focus on induction of a strategic investor and securitisation of non-housing loan exposures. These initiatives remain critical for restoring market confidence, which will help build resource-raising ability.

The company plans to raise equity of up to Rs 2,000 crore. However, timely receipt of funds is critical at this juncture and visibility of the same is limited.

The rating agency said it will continue to monitor DHFL's ability to quickly raise sufficient and diversified resources and prop up its balance sheet liquidity. The progress of various initiatives and their impact on fund raising, build-up of liquidity, and business growth will be key rating sensitivity factors, it added.