CRISIL and ICRA downgrade DHFL’s Rs850 crore CP to default grade
Moneylife Digital Team 05 June 2019
Ratings agencies CRISIL and ICRA on Wednesday downgraded their ratings on Dewan Housing Finance Corp Ltd (DHFL)’s Rs850 crore commercial paper (CP) mainly due to delay in servicing of the debt by the company. 
CRISIL has downgraded its rating on CP of DHFL to 'D' from 'A4+' and also removed the rating from 'rating watch with negative implications'. "The downgrade reflects delays in debt servicing by DHFL on some of its non-convertible debentures (NCDs) - not rated by CRISIL - because of inadequate liquidity. The payments were due on 4 June 2019. DHFL has Rs850 crore of outstanding CPs of which Rs750 crore is due in June 2019. The first CP maturity is on 7 June 2019. With liquidity inadequate as on date to service debt and visibility very low on timely fund raising, CRISIL expects the CP to be in default on maturity," the ratings agency says.
Ratings agency ICRA too downgraded the Rs850 crore CP from DHFL to 'D' from 'A4' while removing the rating from watch with negative implications. ICRA says, "The rating revision factors in further deterioration in company’s liquidity profile and delays in meeting scheduled debt obligation on 4 June 2019. While the mentioned debt is not rated by ICRA, given the stretched liquidity profile and limited visibility on fresh funding, company is unlikely to be able to service its debt obligation with regard to commercial paper programme in a timely manner."
According to the ratings agencies, the main challenge before DHFL is its reduced ability to refinance and stretched liquidity position. "DHFL has weak liquidity as reflected in the delays in debt servicing," CRISIL says, adding, "Scheduled aggregate cash outflows, including loan repayment and securitisation payouts, till July 2019 remains high at an estimated Rs6,200 crore. We understand that many of the investors in NCDs with acceleration clauses have not yet exercised their acceleration rights. With this delay, we believe there is heightened risk of acceleration, thereby materially increasing the debt servicing commitments of DHFL. DHFL estimates collection from loan assets at Rs2,200 crore per month."
ICRA too feels that the liquidity position of DHFL is stretched as evidenced by delay in meeting debt obligation by the company. "As on 11 April 2019, DHFL’s liquidity reserve stood at Rs2,775 crore (including statutoty liquidity ratio-SLR) and it expects monthly collections of Rs2,200 crore, going forward. Against this, the company has scheduled repayments of around Rs6,900 crore, including unanticipated debt repayments already made till 10 May 2019, from 1st May to 30 June 2019. Given stretched liquidity position and limited visibility on fund raising, company is unlikely to be able to service  its debt obligation with regard to commercial paper programme in a timely manner," the ratings agency added.
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