DHFL plunges 19% in two days after CRISIL's credit rating downgrade

The downgrade is driven by continued low visibility in raising funds and CRISIL's belief that liquidity levels will remain subdued vis-a-vis earlier expectations, the rating agency said

Dewan Housing Finance Corporation (DHFL) shares plunged 11 per cent to Rs 139 on BSE in intra-day trade on Monday, extending its Thursday’s 8 per cent decline after rating agency CRISIL downgraded credit rating of the company's commercial paper and continued on watch negative.

At 01:28 pm, the stock was top loser among S&P BSE 500 index constituents. In comparison, the benchmark S&P BSE Sensex was down 0.88 per cent at 38,795 points.

CRISIL said the downgrade was driven by continued low visibility in raising funds and CRISIL's belief that liquidity levels will remain subdued vis-a-vis earlier expectations. Expected fund flow from sell-down of project finance loans, high-value securitisation transaction (comprising greater proportion of non-housing loans), and proceeds from stake sale of associate entities are taking longer than expected.

Liquidity remains a critical monitorable due to the limited visibility in fund raising (including securitisation) and CRISIL's belief that liquidity will now remain lower than earlier expectations. Nevertheless, liquidity level was at around Rs 4,000 crore during the second week of April 2019. Collection from loan assets is estimated at Rs 2,200 crore per month.

On the other hand, scheduled monthly cash outflow (including loan repayment and securitisation payouts) over the next two-and-half months remain high at an estimated Rs 9,900 crore. Any higher-than-anticipated premature redemption of fixed deposits remains a key rating sensitivity factor. Additionally, a portion of the non-convertible debentures (NCDs) raised by DHFL has triggered acceleration clauses linked to downgrades in the NCDs' long-term ratings. Any exercise of option by investors would materially increase the scheduled outflow, the rating agency said in rating rational. CLICK HERE TO READ FULL REPORT