DHFL crisis: A look at the story so far

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Dewan Housing Finance Ltd (DHFL) delayed interest rate payments on June 4, which has hit the net asset values (NAVs) of debt funds. Mutual funds had lent to the company in the form of debt securities.

The NAVs of several debt schemes fell by 6-53 percent on June 4, reflecting the marked-down value of their holdings in DHFL paper.

The non-banking finance company with a focus on housing finance has reportedly missed interest payments of Rs 960 crore. Valuation norms require a write-down in the value of assets in case of such payment delays.

DHFL has faced a series of downgrades by rating agencies on its debt over the past two months.

According to the rating agencies, DHFL has Rs 850 crore of outstanding commercial papers of which Rs 750 crore is due in June 2019. The first CP maturity is on June 7, 2019.

Scheduled aggregate cash outflows (including loan repayment and securitisation payouts) till July 2019 remains high at an estimated Rs 6,200 crore.

As per CNBC TV18 report, DHFL is likely to default on payments on non-convertible debentures (NCDs) worth Rs 1,150 due to liquidity concerns.

In order to ease liquidity situation, DHFL and Wadhawan Global Capital have sold stake in many of their subsidiaries.

In February, Wadhawan Global Capital (WGC) had announced that it was selling its entire 70 percent stake in the affordable housing finance company, Aadhar Housing Finance Ltd (AHFL), to Blackstone. DHFL, which held a 9.15 percent stake in AHFL, had also exit the company.

Also, in March, Wadhawan Global Capital had entered into a definitive agreement with an affiliate of the Warburg Pincus Group to sell its entire 49.04 percent stake in its education finance subsidiary Avanse Financial Services Ltd.

Here’s the timeline on the sequence of events:

– Sep 21: DHFL got attention when DSP Mutual Fund sold Rs 300 crore of DHFL papers at 11 percent in the secondary market, way higher than the traded rates sparking speculation that DHFL could be facing liquidity issues, which has been strongly denied by the company.

-Jan 29: An online investigative portal alleged that DHFL promoters had lent money to ‘shell companies’ allegedly linked to the promoters who have used this money to buy assets abroad.

-March 7: Its share price post the accusation fell further, prompting Care to downgrade the ratings of various debt instruments of DHFL by a notch.

-May 19: CARE Ratings downgraded DHFL’s FD programme worth Rs 20,000 crore from ‘A’ to ‘BBB-‘. CARE A signifies “low” credit risk, while CARE BBB- signifies “moderate” credit risk.

– May 21: DHFL stopped acceptance and renewal of fixed deposits. Also stopped renewals and premature withdrawals from existing fixed deposits on hold.

-May 30: Informed the stock exchanges that it will not be able to furnish the audited standalone and consolidated financial statements for FY19 within the time stipulated by SEBI norms.

-June 4: Delayed interest payment on its bonds and bond repayments worth Rs 960 crore due on June 4.

-June 5: ICRA, CRISIL, CARE and Brickwork Ratings (Brickwork) have downgraded credit ratings on commercial papers of DHFL to ‘D’ (Default) owing to liquidity concerns. Not sure which mutual funds to buy? Download moneycontrol transact app to get personalised investment recommendations.