Bangalore/Mumbai: Rating agencies downgraded their outlook on the non-convertible debenture (NCDs) of Housing Development and Infrastructure Ltd’s (HDIL) and Hubtown Ltd citing potential defaults in payments.
Credit Analysis and Research Ltd (CARE) lowered its rating on HDIL’s tranche I (Rs.227.87 crore) and tranche II (Rs.1,667.5 crore) NCDs from “BBB+” to “D” in a 19 March note. Rating on a third tranche (Rs.200 crore) was lowered to “D” from “A3+”.
Brickwork Ratings India Pvt. Ltd lowered its rating on a Rs.100-crore long-term secured NCD issue of Hubtown (formerly Ackruti City Ltd) to “D”.
NCDs became an instrument of choice for real estate firms looking to raise capital soon after the downturn of 2008-09 as funding from traditional sources dried up. They offered returns of more than 20% to attract investors but the high risks involved are coming to the fore now following the slowdown in the sector last year.
“We downgraded HDIL as the firm had delays in servicing some of its scheduled payments on its non-convertible debentures as was informed to us by an investor. Default in servicing debt is a matter of fact,” a CARE Ratings official said on Wednesday on condition of anonymity.
HDIL has not accepted CARE’s new ratings saying its financial and operational performances were strong, and has asked the agency to restore them. A company has the right to accept or reject the initial rating assigned to a new instrument, but not for subsequent ratings.
HDIL’s profit fell 31% to Rs.107.3 crore in the three months ended 31 December from a year earlier, and its debt stood at Rs.3,466.94 crore.
As for Hubtown’s NCD issue, Brickwork Ratings said in a 19 March note it lowered the rating “following the intimation from debenture trustee that company has defaulted in repayment of its interest and principal obligations of the rated NCD”.
In November, Brickwork suspended its initially assigned “BBB-” rating on Hubtown’s NCD issue “due to non-cooperation of the company to share information required for review”.
Hubtown’s managing director Vimal Shah didn’t respond to calls and text messages sent on Wednesday.
Both HDIL and Hubtown operate predominantly in the lucrative slum redevelopment business in Mumbai.
HDIL’s investors have been wary of the company since January when promoter Sarang Wadhawan sold five million shares to raise Rs.57 crore to buy land in central Mumbai. The HDIL stock has lost 48.1% of its value since.
On Wednesday, HDIL shares plunged nearly 20% to Rs.48.70 on BSE and Hubtown fell 3.28% to Rs.147.65. The benchmark Sensex fell 0.65% to 18,884.19 points and the BSE realty index lost 4.67% to end at 1,859.03 points.
The Economic Times in January reported that Century Real Estate, a Bangalore-based realtor, failed to pay interest in time on one such bond issue placed with investors by Kotak Mahindra Prime, a non-banking finance company. The builder has since made the payments.
“We are likely to see more such cases of defaults and delayed payments by developers even though the demand to raise money through issuing NCDs will not wane,” said Ambar Maheshwari, managing director, corporate finance at property advisory Jones Lang LaSalle India.
Mint Money in a report on 18 March said that while NCD issues come with safety nets against potential defaults, the enforcement could be a long-drawn and cumbersome process.