DHFL loses AAA status as CARE downgrades Rs 1 lakh crore loans

There is more bad news for Dewan Housing Finance Ltd (DHFL), whose shares have lost over half of their value in the last one month. CARE Ratings has downgraded ratings on debt worth over Rs 1 lakh crore issued by DHFL.

The rating outfit cited moderation in financial flexibility as evidenced by a sharp reduction in share price and a significant rise in bond spreads. The rating action will make fund-raising more expensive for the housing finance company (HFC) targeting low- and middle-income families in tier II and III cities.

The non-banking finance company’s (NBFC) Rs 17,655 crore worth non-convertible debentures (NCDs) have been downgraded to CARE AA+ from AAA. Separately, the Rs 29,000 crore public issue of NCDs has also been downgraded to AA+ from AAA. Rating on DHFL’s Rs 20,000 fixed deposit programme has also been brought down a notch to AA+ (FD) from AAA (FD). Its long-term bank facilities worth Rs 42,713 crore have also been downgraded from AAA to AA+.

Separately, DHFL’s subordinated debt worth Rs 2,205 crore has been downgraded to AA from AA+. Perpetual debt worth Rs 1,300 crore has been revised to AA- from AA. Also, the Rs 750 crore non-convertible redeemable cumulative preference shares have are now rated AA from AA+ earlier.

CARE said, “While stock prices and credit spreads were negatively affected for NBFCs and HFCs post September 2018, recent media news related to DHFL has further impacted market sentiment. DHFL’s ability to raise resources at competitive rates would be crucial for its profitability and long-term growth prospects going forward.”

To tackle the changed market conditions, DHFL has embarked upon certain measures which it intends to conclude in the medium term, with some milestones being targeted to be concluded by March 2019. The milestones include fresh capital infusion of around Rs 2,000 crore and monetisation of certain group investments by DHFL and its parent Wadhawan Global Capital Ltd aimed at considerably reducing the gearing levels of DHFL to below eight times.

The rating action will have implications for over Rs 8,500 crore worth debt exposure mutual funds have to DHFL group entities. About Rs 7,800 crore exposure is in open-ended funds while the rest is in closed-ended schemes. UTI, Reliance, Axis and Franklin Templeton have the highest exposure in value terms.

On February 2, WGC had announced it will be selling its entire 70% stake in Aadhar Housing Finance Ltd (AHFL) to private equity funds managed by Blackstone. Dewan Housing Financial , which holds a 9.15% stake in Aadhar Housing Finance Limited (AHFL), will also be exiting the company as a part of the transaction. The transaction with Blackstone is a part of a multi-pronged strategy to reduce the corporate debt levels and strengthen balance-sheet.

Crisil on February 2 had also placed Rs 18,000 crore debt of DHFL on “ratings watch with negative implications”.