HDIL shares at record low on rating downgrade

Stock tumbles 24% in two trading sessions

For the second time this year, property developer HDIL was at the receiving end of bearish traders on Wednesday. The stock crashed 20 per cent to record lows of Rs 48.70 on Wednesday after rating agency CARE assigned a junk grade to the company’s non-convertible debentures (NCDs) worth Rs 2,094 crore.

CARE has downgraded two tranches of NCDs worth Rs 1,894 crore from 'BBB+' to 'D' grade and another worth Rs 200 crore from A3+ to 'D' grade. D means instruments that are in default or going to default soon.

“The revision in the ratings of HDIL reflects the ongoing delays in servicing its non- convertible debentures obligations,” said CARE analyst Mahendra Patil in a note.

The stock had fallen 5.50 per cent on Tuesday, suggesting some in the market had an inkling of the grading of its NCDs. Analysts said traders had accumulated bearish bets on the stock through its futures contracts on Monday and Tuesday. Some brokers did not rule out the possibility of margin calls accentuating the slide in the stock. Late in January, the stock had taken a beating.

HDIL has to pay Rs 2 crore on the NCDs, which it could not pay last month as the company’s accounts were frozen temporarily, said television reports.

In a statement to the BSE on Wednesday, HDIL said it has not accepted the rating assigned by CARE and sought a review of the rating. “We would like to reiterate the company’s strong financial and operational performance,” it said.

The company’s stock, which opened Rs 60.25 on Wednesday, touched an all-time low of Rs 47.90 in the afternoon trade.

“The downgrading by CARE signals liquidity crunch in the company. That’s why stock has fallen,” said Rikesh Parikh, vice-president (markets strategy and equities) at Motilal Oswal Securities. “Everything is related to liquidity. In any situation of adverse cash flows or liquidity, investors want to exit from the stock. If that is sorted out, everything will settle down,” said Parikh.

Worries about the financial health of the company have weighed on the stock so far this year. The stock, which has fallen 58 per cent since January, fell nearly 40 per cent of its value from Rs 120.85 on January 21 to Rs 74.65 on January 24 after the firm’s vice-chairman and managing director Sarang Wadhawan sold 1.2 per cent of the stake for Rs 57 crore to meet some land payment obligations.

With banks refusing to lend to the company and promoters resorting to a stake sale to raise the money, market participants had interpreted the move. The company's high-debt levels and promoters’ sizeable share pledging -- about 96 per cent of their holdings — has been a cause of worry for investors, who have dumped the stock in recent weeks.

HDIL has a consolidated debt of around Rs 4,000 crore. Although its cashflows were at Rs 814 crore in FY12, it spent Rs 624 crore on interest payment and Rs 953 crore towards payment of long-term debt.

According to analysts, HDIL is facing its own peculiar problems: Delay in getting cash from buyers, lower launches, delays in the MIAL (Mumbai International Airport Project) project and high debt. As a result, HDIL had Rs 868 crore debtors (mostly dues from customers) on inventories worth Rs 11,671 crore in FY12. For a company whose annual turnover was Rs 2006 crore in FY12, the amount of debtors and inventories is unusually high.