How DHFL’s delay in bond repayment of over Rs 900 crore may impact mutual fund investors

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Updated: June 5, 2019 12:59:32 PM

With Dewan Housing Finance Corporation (DHFL) delaying repayment of debt-related obligations on Tuesday of more than Rs 900 crore, it may require the mutual funds with exposure to the company’s financial instruments to mark down their Net Asset Values (NAVs), experts said.

CARE Ratings downgrades DHFL debt worth Rs 1.13 lakh croreThe funds may do such so as to avoid any redemption pressure by large investors, they added.

With Dewan Housing Finance Corporation (DHFL) delaying repayment of debt-related obligations on Tuesday of more than Rs 900 crore, it may require the mutual funds with exposure to the company’s financial instruments to mark down their net asset values (NAVs), experts said. The funds may do so as to avoid any redemption pressure by large investors, they added. “The mutual funds have already marked down the NAVs by 75 per cent,” Deepak Shenoy, Founder, Capital Mind, told Financial Express Online.

The mortgage financier missed on the interest payments owing to financial crisis. However, the delay couldn’t be technically termed as default as there lies a ‘cure period’ of 7 days within which the obligation could be serviced, the company said in a statement issued on Friday. Only if the non-payment continues after the given cure period, it may be constituted as a default, it added.The company also said that it is taking all measures to meet interest payments within the cure period. Several mutual funds and banks have exposure to DHFL.

“It is likely to impact the NAV’s as most banks are turning wary of lending more to DHFL or buying its pool of assets. Unless there is a strategic sale very fast DHFL will find it more and more difficult. The extent of the haricut will depend on the instrument being held”, independent market expert Sandip Sabharwal told Financial Express Online.

Commenting on the development, financial advisor, Harsh Roongta said:“Since the mortgage financier still has seven days of grace period, it would be early to term it as a default. A grace period is allowed by the Debenture Trust Deed within which interest payments can be made. Let’s see what happens after seven days.”

Several NBFCs are facing liquidity pressure following the default by IL&FS last year. In the recent past, DHFL made sale of its various assets including Aadhar housing, Avanse and DHFL Pramerica Asset Managers to raise funds for the repayments. The company has repaid nearly Rs 40,000 crore of financial obligations since September last year. The CARE Ratings even downgraded the NCDs worth over 17,000 crore to BBB- from A on account of delays in the announcement of a strategic investor that the mortgage financier planned to bring on board.

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