DHFL borrowings: Mutual funds stop subscription to some schemes

By: |
Updated: June 7, 2019 6:30:59 AM

CARE Ratings has downgraded all of Dewan Housing Finance’s (DHFL) borrowings – worth nearly Rs 1.03 lakh crore — to default grade from BBB- and BB+, citing a recent instance of delay in servicing of obligations with respect to some non-convertible debentures (NCDs) by the company.

DHFL borrowings, Mutual funds, CARE Ratings, DSP MF, BNP Paribas MF, DHFL Pramerica MF, The move by CARE Ratings follows a similar action by its peers CRISIL and ICRA on Wednesday, both of whom downgraded commercial paper (CPs) of DHFL to ‘default’ after the lender delayed interest payments.

A few fund houses have temporarily suspended the subscription to some of the schemes which had invested in debt instruments of DHFL even as CARE Ratings downgraded all of Dewan Housing Finance’s (DHFL) borrowings — worth nearly Rs 1.03 lakh crore — to default grade . Tata Asset Management Company (AMC) announced side-pocketing or creation of segregated portfolio for three debt schemes while DSP MF, BNP Paribas MF and DHFL Pramerica MF have suspended subscriptions for a couple of their debt schemes. The moves come a day after several fixed income schemes saw a fall in their net asset value (NAV) as Dewan Housing Finance Corporation (DHFL) missed interest payments on a set of outstanding bonds. Mutual fund houses had an exposure of Rs 4,400 crore as at the end April, 2019, according to Value Research according to data by Value Research.

CARE Ratings has downgraded all of Dewan Housing Finance’s (DHFL) borrowings – worth nearly Rs 1.03 lakh crore — to default grade from BBB- and BB+, citing a recent instance of delay in servicing of obligations with respect to some non-convertible debentures (NCDs) by the company. While 47% of DHFL’s borrowings were from debt capital markets, 38% was in the form of bank loans.

The move by CARE Ratings follows a similar action by its peers CRISIL and ICRA on Wednesday, both of whom downgraded commercial paper (CPs) of DHFL to ‘default’ after the lender delayed interest payments. In its rating rationale, CARE said the liquidity profile of the housing finance company (HFC) continues to remain stressed on account of delay in identification and induction of a strategic investor and limited progress on generating additional liquidity through sell-down and securitisation of its builder loan book.

“There has been a deterioration in liquidity profile of DHFL with cash and liquid investments decreasing from Rs 4,668 crore (including SLR) as on March 31, 2019 to Rs 2,775 crore(including SLR) as on April 30, 2019,” analysts at CARE wrote.

The rating rationale added that as per the company’s liquidity statement as on April 30, 2019, it was envisaging cumulative cash inflows of around Rs 6,600 crore from June 2019 to August 2019, as against scheduled cumulative cash outflows of around Rs 10,780crore during the same period. This reflects a negative cumulative mismatch of around Rs 4,180 crore.

CARE Ratings indicated that the profile of a large number of DHFL’s borrowers is also cause for concern. “DHFL has exposure to the lower and middle income group which is more prone to defaults in case of a stressed economic scenario,” CARE said, adding that the proportion of wholesale loans, much of which was builder loans, increased to 23% of the outstanding loan book as on December 2018 from 18% as on March 2018 and 14% as on March 2017. Builder loans are considered a relatively risky segment.

Mutual fund houses had an exposure of Rs 4,400 crore as at the end April, 2019, according to Value Research according to data by Value Research. Fund managers indicated to FE the DHFL management had informed them the money would be paid by June 10. The lender faced a series of downgrades in May as rating agencies raised concerns over the asset-liability mismatch in its books.

Tata AMC in the press note said, Tata Asset Management Limited (AMC) has already sent individual written communication as well as released a notice advertisement in newspapers for enabling provision of segregated portfolio in the Tata Corporate Bond Fund, Tata Medium Term Fund and Tata Treasury Advantage Fund. “Investors have been provided 30 days’ load free exit period to redeem from the schemes. The 30 days’ load free exit period will expire on 14th June 2019,” said the release.

Get live Stock Prices from BSE and NSE and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Switch to Hindi Edition
FinancialExpress_1x1_Imp_Desktop