Raters put DLF Ltd on 'rating watch with negative implications'

Written by fe Bureau | Mumbai | Updated: Oct 19 2014, 02:49am hrs
DLFThe SEBI order will adversely impact DLF's ability to access the capital markets and constrain its financial flexibility, which has been one of its key rating strengths.
Credit rating firms have placed real estate major DLF Ltd's bank facilities and debt instruments to 'rating watch with negative implications', following Securities and Exchange Board of India's (SEBI's) order on October 10, 2014, restraining DLF and some of its key executives from accessing the securities market, and from buying, selling or dealing in securities, directly or indirectly for a period of three years.

The order is in relation to violation of SEBI regulations on disclosure with respect to its initial public offering (IPO).

CRISIL said, "The SEBI order will adversely impact DLF's ability to access the capital markets and constrain its financial flexibility, which has been one of its key rating strengths". CRISIL has long-term rating of CRISIL A and short-term rating of CRISIL A2+ on DLF's total bank loan facilities of Rs 15,730 crore, CRISIL A rating to Rs 5,000 crore of NCDs and CRISIL A2+ to Rs 3,000 crore of short-term debt.

CRISIL said that though more than 90% of the company's debt outstanding consists of bank loans and not contracted from the capital markets, the order, "will impact DLF's plans to raise funds through capital market instruments over the medium term such as equity, commercial mortgage-backed securities (CMBS) and real estate investment trusts (REITs)".

However, in a seperate note CRISIL said that the ratings on CMBS transactions of DLF Emporio and DLF Promenade remain unaffected by SEBI order. It said that the structural features of the CMBS instruments (issued as non-convertible debentures; NCDs) allow the ratings to be delinked from the parent companys credit risk profile to a large extent. Also, the refinancing for both transactions is expected to happen only after the SEBI order on DLF expires, it said.

Another credit ratings agency, ICRA also placed the long-term rating to over Rs 4,000 crore NCD programme, Rs 10,169 crore fund based facilities and Rs 1,160 crore non-fund based facilities of DLF, on rating watch with negative implications.

"The order will constrain the financial flexibility of DLF while having an adverse impact on its ability to reduce cost of debt as well as its debt reduction programme during this period," ICRA observed.