CARE downgrades DHFL debentures on delay in naming strategic investor

Rating agency CARE Ratings has downgraded rating for Dewan Housing Finance Ltd's (DHFL) debentures from "A" to "BBB-" on delay in announcement of strategic investor as a part of reorganisation of the company.

The revision in the long-term ratings of DHFL takes into account delays in announcement of strategic investor. Rating agency had earlier held discussion with the management and had expected the announcement to be done before end of April 2019. 

During the last review, DHFL had indicated that it would reorganize its businesses by induction of strategic investor for the retail home loans and other similar asset classes. It was to also sell-down of its wholesale book through various structured transactions. 

However, the finalization of the investor and its announcement has not yet taken place. The company is still short listing the investor as some investors have evinced interest in acquiring stake in businesses of DHFL. The deal announcement is critical to instill confidence to the market and also help to create liquidity to meet mismatches in near future and provide support to its business. 

CARE Ratings will continue to monitor the developments about announcement of strategic investor/s in DHFL, which CARE expects before end of May 2019. The business reorganization would be linked to the finalization of the strategic investor and their choice for certain asset classes of DHFL. 

Further, business reorganization will be subject to approvals from regulator, lenders and other stakeholders which bring in its own challenges. Hence, the timelines for these initiatives would remain a key rating monitorable. 

CARE Ratings will continue to monitor the progress of various initiatives like further sell down of builder book and pool securitization to build up additional liquidity in near term. The company has been able to raise around Rs 2,800 crore and Rs.1 000 crore through pool sell down in March 2019 and April 2019 respectively. 

As per the discussion with the management, the equity infusion and EMI inflows would yield adequate liquidity for the company to meet obligations for the near term. There is slower progress with respect to generation of additional liquidity as compared to the earlier stated plans to raise substantial funds mainly through builder pool sell down and securitization, it added.