Stock rebounds from 13% intra-day drop after management moves to assuage investor concerns
Dewan Housing Finance Ltd (DHFL) on Monday rebounded strongly wiping away early losses after its management expressed intent to rope in an equity partner.
In the early morning trade, the shares fell almost 13% to an intra-day low of Rs 97 per scrip after ratings agency CARE has downgraded ratings from "AAA" to "AA" for debentures, loans and deposits.
DNA Money had reported the CARE downgrade on Monday.
However, the stock bounced back 26.3% to an intra-day high of Rs 122.55 before closing at 116.10, 4.17% higher than the previous close.
The stocks rebounded after Kapil Wadhawan, chairman & MD, Wadhawan Global Capital (WGC), the promoter holding company, in a conference call with investors, said the allegations of financial irregularities are false.
Wadhawan said that after announcing the sale of Aadhar Housing to Blackstone, the company is also looking to exit its investments in Avanse Financial as well as the group investment in the life insurance business.
"We want to the pave the way for on-boarding a strategic partner and we have already started the discussion to achieve this in next 90 days," he told analysts.
The company's stocks are facing trouble since September last year when the liquidity crisis relating to the IL&FS fiasco started to unfold. Last week, a news report alleged that DHFL had diverted loans worth Rs 31,000 crore to "shell companies", which was termed as "false" by Wadhawan.
According to him, the loan amounts aggregate to Rs 23,500 crore, and said the complaints against the company are "riddles with false allegations and false statements."
He also said that the alleged set-up of shell companies is also false since none of companies are designated or described as a shell company by the Ministry of Corporate Affairs when it issued its list of shell companies in 2017. He said that all SRA projects are duly approved by the Slum Development Authority and has adequate securities.
The company has taken strategic measures that will conclude in the medium term to tackle the market conditions.
Meanwhile, State Bank of India chairman Rajnish Kumar told a television channel that the bank's exposure to DHFL is Rs 11,000 crore. He, however, said the exposure is "secured, serviceable and the cash flows are positive".
Apart from CARE Ratings, Icra has placed the short-term rating outstanding of A1+ for the Rs 8,000 crore commercial paper programme of DHFL on watch with negative implications, adding that the rating could adversely impact the company's credit profile.
In a note, Icra said the risk is further heightened by the moderate economic capitalisation levels, concentration risks arising out of 17% exposure (as a proportion of AUM as on December 31,2018) to the construction finance segment, a large part of which remains under construction/moratorium, and the reduced ability of DHFL to refinance and support fresh business.
As on January 31, 2019, as per Icra report, the company's liquidity reserve is Rs 6,500 crore, including SLR would be sufficient to meet the scheduled repayments till March 2019. However, in case of higher-than-anticipated premature deposit withdrawals, the liquidity could get stretched.
Crisil and Brickwork Ratings India also downgraded their ratings on commercial paper, short-term deposit, secured NCD, subordinated debt, fixed deposit. While Crisil has placed A1+, on rating watch with negative implications to Rs 8,000 crore commercial paper and Rs 1,000 crore short-term deposit, Brickwork Rating has "downgraded" its rating from AAA to AA+ for Rs 29,000 crore and Rs 12,000 crore secured NCD, as well as on Rs 2,250 crore subordinated debt. It also changed its rating from FAAA to FAA+ for Rs 12,000 crore fixed deposit, and from AA+ to AA for Rs 1,300 crore innovative perpetual debt instrument.
Meanwhile, brokerage firm Geojit Financial Services said it has discontinued its coverage on DHFL. The brokerage earlier has a "buy" rating with a target price of Rs 661as per a report dated October 25, 2017.
Credit Suisse in a recent report said domestic debt funds are facing rising concerns on their exposure to DHFL. The company is also among the larger borrowers from mutual funds and their aggregate exposure is Rs 8,500 crore. Banking sector exposure to DHFL is estimated at Rs 40,000 crore. Exposure for some fund houses is larger, at 2-10% of total debt asset under management (AUM), with some schemes having up to 30% of their AUM to DHFL.
"Overnight, some schemes have taken mark-to-market (MTM) losses on this exposure with DHFL paper being re-priced at higher yields. If this continues and leads to redemption pressure, we may see a second wave of risk aversion in domestic debt fund and volatility in their flows," the Credit Suisse report said.
MONEY MATTERS
- Rs 6,500 cr – Liquidity reserve of DHFL, sufficient till March 2019
- Rs 8,500 cr – Commercial paper of DHFL has been placed on watch with negative implications by Icra
- Rs 11,000 cr – State Bank of India’s exposure to DHFL
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