DHFL shares fall 8% after Icra downgrades commercial paper programme

Shares of Dewan Housing Finance Ltd (DHFL) fell as much as 8 per cent on Tuesday after credit rating agency Icra lowered the rating of the housing finance company’s commercial papers (CPs). The scrip recouped some of the losses, closing 4.3 per cent lower at Rs 131.

Icra downgraded DHFL’s Rs 8,000-crore CPs from ‘A1 plus’ to ‘A2 plus’, citing impact on the company’s ability to generate fresh business due to challenges in raising funds from banks and debt markets.

The rating cut could lead to mark-to-market losses for debt schemes, which have Rs 1,000 crore exposure to DHFL’s CPs. However, fund managers say the impact on these papers may be limited as yields are already on the higher side. According to data from Value Research, mutual fund (MF) schemes’ exposure to DHFL’s various debt instruments stood at Rs 7,555 crore as on January 31, 2019. DHFL, in its response, said the rating action was “uncalled for” and not based on merit.

“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 that would have compelled the rating agency to review the ratings in less than a month’s time,” DHFL said in its statement.

DHFL questioned the motivation for the rating action as it didn’t take cognizance of the remedial measures taken by the company to deal with the liquidity crisis.  

“The rating was for outstanding CPs of only Rs 1,525 crore out of a rated amount of Rs 8,000 crore, which forms less than two per cent of the company’s outstanding borrowings. The company had also indicated its intent to the rating agency to extinguish the CP outstanding by the end of March. The rating action has not taken cognizance of this in its decision and has chosen to go ahead with the rating action.”

However, Icra noted that DHFL has been regular in meeting its debt obligations with repayments largely supported by sizeable securitisation and assignment of loan assets. 

The shares of DHFL have taken a heavy beating in the last few months due to the liquidity crisis triggered by the Infrastructure Leasing & Financial Services (IL&FS) group default in September and allegations of mismanagement by media outlet Cobrapost.