Rating agency CARE has downgraded ratings for Dewan Housing Finance Corporation Ltd (DHFL’s) bonds, loans on moderation in financial flexibility for housing finance company. It is evidenced by sharp reduction in its share price and significant rise in bond spreads.
CARE cut ratings from “AAA” to “AA+” for debentures, loans and deposits. Rating for commercial paper (“A1+) has kept under watch with developing implications.
The stock prices and credit spreads were negatively affected for finance companies and housing finance companies post September 2018. Also, recent media news related to DHFL has further impacted market sentiment.
Last week, Cobrapost alleged that DHFL diverted loans worth Rs 31,000 crore — a charge the firm termed “mischievous”. Also, in the third quarter, DHFL had to face market hit over asset liability risks after IL&FS group entities defaulted on payment of dues. DHFL’s ability to raise resources at competitive rates would be crucial for its profitability and long-term growth prospects going forward, CARE said.
DHFL has begun to take strategic measures, which it intends to conclude in the medium term, to tackle the changed market conditions. It plans to infuse fresh capital of around Rs 2,000 crore and monetisation of certain group investments and its parent (Wadhawan Global Capital). These steps are aimed at considerably reducing the gearing levels of DHFL to below eight times. Both have signed a deal with Balckstone group to sell their over 70 per cent stake in Aadhar Housing Finance.
Other steps to give better shape to financial profile include halving of its builder loan portfolio from its level as on December 31, 2018.
CARE has placed the ratings under credit watch and will continue to monitor the situation. The ratings continue to factor in consistent track record of DHFL in the housing segment and expertise in lending to the lower-middle income group borrower segment while maintaining asset quality. The ratings also factor in DHFL’s experienced management, adequate capital adequacy, diversified resource profile, moderate liquidity profile and increasing share of wholesale loans in overall portfolio mix.