Crisil downgrades DHFL's commercial paper rating to 'default' grade

Global rating agency Crisil on Wednesday downgraded its rating on the commercial paper of Dewan Housing Finance Corporation Limited (DHFL) to 'Crisil D' from 'CRISIL A4 plus' as the company has failed to pay interest on bonds.

The rating has been removed from 'Rating Watch with Negative Implications.' "The downgrade reflects delays in debt servicing by DHFL on some of its non-convertible debentures (NCDs) -- not rated by Crisil -- because of inadequate liquidity. The payments were due on June 4," it said in a statement.

DHFL has Rs 850 crore of outstanding commercial papers of which Rs 750 crore is due in June. The first commercial paper maturity is on June 7. "With liquidity inadequate as on date to service debt and visibility very low on timely fund-raising, Crisil expects the commercial paper to be in default on maturity."

For arriving at the rating, Crisil has evaluated the standalone business and financial risk profiles of DHFL. It said the company reported net worth and capital adequacy ratio were Rs 10,750 crore and 17.74 per cent respectively as on December 31, 2018 (Rs 10,401 crore and 16.19 per cent respectively as on September 30, 2018).

Reported gearing was 9.3 times. Gearing adjusted for securitisation also remained high at 12.1 times.

Return on managed assets, though stable at 1.3 per cent during the first nine months of fiscal 2019, was lower than that of peers (reported return on assets was 1.4 per cent), primarily because of intense competition resulting in low spreads, and high operating expenses on account of large branch network and small ticket size of loans.

DHFL's scheduled aggregate cash outflows (including loan repayment and securitisation payouts) till July 2019 remains high at an estimated Rs 6,200 crore.

"Crisil understands that many of the investors in NCDs with acceleration clauses have not yet exercised their acceleration rights. With this delay, Crisil believes there is heightened risk of acceleration, thereby materially increasing the debt servicing commitments of DHFL," it said.