Shares of Dewan Housing Financial Corp Ltd (DHFL) plunged 10 percent on Friday,
extending previous session's fall, after rating agencies Crisil and Icra downgraded the company's Rs 850-crore commercial paper to ‘D’ from ‘A4+’ and ‘A4’, respectively.
The ratings downgrade comes a day after the mortgage lender delayed interest payment worth Rs 1,150 crore to the investors of non-convertible debentures (NCDs). “The downgrading reflects delays in debt servicing by DHFL on some of its NCDs because of inadequate liquidity,"
Kapil Wadhawan, Chairman and MD of DHFL, has rapped the sharp downgrade by rating agencies. “Firstly, the company is not insolvent. We continue to get cash flows. Considering the actions taken by the rating agencies post January, I think there are questions to be asked to them. We were a AAA-rated marquee housing finance company and within three and a half months, we were down to a D,” he told CNBC-TV18.
Wadhwan has highlighted the company’s track record. “DHFL has been one of the largest housing finance companies in the country with a prime focus on the lower and the middle-income segment in tier-II and tier-III markets. We are the largest contributor to the Pradhan Mantri Awas Yojana and more than 100,000 units have been financed by us over the last three years,” he pointed out.
“In September 2018, we abruptly caught into a liquidity jam. It was not just DHFL, it was the sector as a whole -- both the non-banking financial companies and the housing finance companies. All the market participants found it extremely difficult to raise fresh resources from the market. Clearly, DHFL has had a strong history and standing with more than 30 banks in the country, whether in terms of term-loan borrowings or selling loans to them, which has been much appreciated by the participants as the quality of assets has been absolutely pristine. This has helped us from September last year till today,” Wadhawan said.
According to DHFL chairman, terming the present crisis as a solvency issue is a misnomer. “I have heard some market experts talk about solvency issues, about DHFL being tagged with some other companies which have had similar problems from different sectors. We are a financial institution, we have underlying assets which keep on giving us cash flow even today. Now if you abruptly stop the lending activity for a large institution like us with more than Rs 1.25 lakh crore worth assets under management and expect us to start paying down the liabilities of all creditors, even a bank today would not survive,” he opined.
Stating that the company is well on track with the NCDs pay-out, the chairman says it is not a default but only a delay. “We have raised money through various sources, primarily from the capital markets, debt markets –we have been focused on raising money through public issuance of NCDs, we have done three large public issuances. Now, this obviously was the first anniversary of the pay-out of the last issue that was done in June last year and that amount was about Rs 960 crore,” Wadhawan stated.
“As I said before, for any financial institution, if you cut all the supply of money, which is our raw material, it is a situation where even a bank would have asset-liability mismatch. If today banks were not allowed to have access to the repo window or their deposit lifeline was cut, I don’t think the banks would actually be in a solvent position. They would be hit with asset and liability management challenges to meet the obligations to their depositors,” he added.