Icra expects refinancing risk to be lower for the debt market instruments as the bulk of the maturing non-convertible debentures (NCDs) and commercial papers (CPs) belong to the AAA/AA+ category.
The presence of adequate on-balance sheet liquidity and a smaller percentage of their borrowers availing the repayment moratorium could help housing finance companies (HFCs) support their liquidity profile, rating agency Icra said on Monday. However, the available liquidity could fall if more borrowers avail the moratorium after the three-month extension given to it.
The weighted average on-balance sheet cash and liquid investments for HFCs stood at about 7% of the assets under management (AUM) as on March 31, 2020. If the funding lines sanctioned to these companies were to be included, this figure would rise to 12%, Icra said, adding that any adverse change in collection efficiency or lender sentiments towards HFCs will continue to be key monitorables.
The available liquidity is sufficient and could typically cover about two months of debt repayments (excluding securitisation and/or direct assignment outflows) of most HFCs, while access to the sanctioned funding lines could enhance the cover to three months, assuming no additional collections from advances.
Supreeta Nijjar, vice-president, Icra, said around 31% of the HFCs’ portfolio was under moratorium for two to three months as on April 30, 2020. Further, most of the HFCs have not applied for a moratorium from their lenders. “While the HFCs in the affordable housing segment have a higher share of portfolio under moratorium owing to the relatively marginal borrower profile, which may have been impacted more during the lockdown, they are carrying adequate liquidity to service their debt obligations till August 2020,” Nijjar said.
A rating category-wise analysis of the liquidity buffers shows that entities in the AA to A rating category were carrying significantly higher on-balance sheet liquidity vis-à-vis the higher rated entities as most of the AA+/AAA rated HFCs enjoy higher refinancing ability or are backed by a strong parent or group. Icra expects the inflows from advances not under moratorium to likely support the liquidity profile of HFCs. However, the Reserve Bank of India’s (RBI) extension of the moratorium till August 31 could lead to an increase in the share of portfolio under moratorium, thereby reducing the liquidity cover.
Based on Icra’s estimates, the total maturing debt for FY21 is estimated to be Rs 2.9-3.2 lakh crore, of which Rs 1.4 lakh crore is accounted for by debt markets. The incremental funding requirement on this account would largely be met through refinancing by banks and primary issuances by HFCs in debt markets.
Icra expects refinancing risk to be lower for the debt market instruments as the bulk of the maturing non-convertible debentures (NCDs) and commercial papers (CPs) belong to the AAA/AA+ category. The maturities of AA and below rated entities stood at about Rs 17,800 crore, which would largely be supported by the higher on-balance sheet liquidity buffers maintained by these entities, the special refinance facility offered by the National Housing Bank (NHB) as well as inflows from collections.
Moreover, as HFCs raised approximately Rs 34,000 crore through the debt market route and from the NHB during April and May, it is expected that most of the HFCs will maintain an adequate liquidity profile for meeting their debt obligations even with lower collection levels of around 50-80% in the portfolio. “However, any adverse change in collection efficiency or lender sentiments towards HFCs will continue to be a key monitorable,” Nijjar said.