DHFL declines 8% as ICRA downgrades its commercial papers

The stock dipped 8 per cent to Rs 125 on the BSE in early morning trade after the rating agency ICRA downgrades the company's commercial papers (CPs) worth Rs 8,000 crore to 'A2+' from 'A1+'.

Shares of Dewan Housing Finance Corporation (DHFL) slipped 8 per cent to Rs 125 apiece on the BSE in early morning trade after rating agency ICRA downgraded the company’s commercial papers (CPs) worth Rs 8,000 crore to ‘A2+’ from ‘A1+’.

DHFL, however, said that the rating action by ICRA is not merit based at all. It has not taken cognizance of DHFL’s intent to extinguish CPs by end of March and the fact that it is in advanced stages of fund-raising transactions.

ICRA said the rating revision takes into account the moderation in the company’s financial flexibility owing to challenges faced in raising funds from traditional bank lines and debt market instruments, and the consequent impact on the company’s ability to generate fresh business.

ICRA notes that DHFL has been regular in meeting its debt obligations with repayments largely supported by sizeable securitisation and assignment of loan assets. With limited fresh business generation and sizeable securitisation and assignment of loan assets, the pool eligible for sell down has also been declining, thereby reducing the company’s ability to refinance through securitisation.

While the present resources, along with monthly collections, would be adequate to meet the scheduled repayments till March 2019, the liquidity position could get stretched in case of any acceleration of debt by the lenders and/or higher-than-anticipated premature deposit withdrawals, the rating agency said in rational. CLICK HERE TO READ FULL REPORT

DHFL said that this action comes barely three weeks after the company was downgraded and kept on watch by all the rating agencies. Since then, no material event has taken place which would have compelled the rating agency to review the ratings in less than a month’s time.

ICRA’s uncalled-for action triggers question on the motivation of this rating action, especially when the company is slowly getting back to normalcy and has met each of its obligations on time. This rating action is not merit based at all, especially at a time, when the company has demonstrated its overall commitments including asset sell down like it did with its stake in Aadhar HFC, reducing CP exposures etc, it added.

At 10:20 am; DHFL was trading 6.5 per cent lower at Rs 128 on the BSE. In comparison, the S&P BSE Sensex was down 1.1 per cent or 400 points at 35, 813. A combined 7.75 million equity shares changed hands on the counter on the NSE and BSE so far.