Mumbai: Shares of Dewan Housing Finance Corp Ltd (DHFL), one of India’s largest housing finance companies, on Wednesday slumped nearly 10% after the company said it will not accept new deposits, while stopping renewals of existing ones, with immediate effect. The beleaguered financier also said it will not allow premature withdrawals to "help reorganise its liability management."
The move follows the recent revision of the credit rating of its fixed deposit programme.
On Wednesday, shares of DHFL hit a low of ₹107.15 on the BSE, falling as much as 17.5%, while India's benchmark Sensex Index was up 0.36% to 39110.21 points. At closing, the scrip was at ₹117.65, down 9.43% from its previous close. So far this year, the stock has declined 50%.
DHFL has been the subject of multiple downgrades in recent months. The most recent downgrade by CARE Ratings was for borrowings including long-term bank facilities, fixed deposit programme, perpetual debt, subordinated debt and Non-Convertible Debentures (NCDs) worth ₹1.13 trillion. Of this, the Fixed Deposit Programme worth ₹20,000 crore was downgraded from CARE A to CARE BBB- (Credit Watch with negative implications). According to CARE Ratings, CARE A signifies ‘low’ credit risk, while CARE BBB signifies ‘moderate’ credit risk.
DHFL offers deposits to for tenors ranging from 12 months to 120 months and with interest rates ranging from 8.2% to 9.25% (on deposits of less than ₹5 crore).
"In view of the recent revision in the credit rating of our Fixed Deposit program, acceptance of all fresh deposits, as well as renewals, has been put on hold with immediate effect", the company said in a statement late on Tuesday.
It is to be noted, however, that DHFL has not defaulted on any of its borrowings. "Over the last few weeks there has been several unwarranted speculation in the market about the creditworthiness of DHFL. We assure you that we stand committed to honouring all our liability payments, and have demonstrated this by repaying liabilities amounting to approximately ₹30,000 crore since September 2018, without a single day’s delay", the company said.
Last week, ratings firm ICRA downgraded securities called pass-through certificates issued under six loan pools by Dewan Housing, citing sustained deterioration in its credit profile.
“The crisis in asset-liability mismatch is a fundamental problem faced by the NBFC sector and this distress needs to be addressed at a policy level by the new government. It has the potential to turn into full blown crisis wherein the credibility of the sector in general and the concerned institution in particular will be at risk from an investor perspective," an analyst said on condition of anonymity.
Since the beginning of this year, Dewan Housing has seen its credit rating fall four notches at CARE Ratings and also at Brickwork Ratings to BBB+.
In January, Cobrapost accused the company of a financial scam worth ₹33,000 crore. However, Dewan Hosing has denied the allegations and called its disbursements in line with regulations.
“I expect HDFC to continue to gain market share at the expense of its weaker rivals. Investors should completely avoid names like DHFL, Indiabulls Housing Finance and LIC Housing Finance. However those with a high risk appetite can look at middle of the road companies like Can Fin Homes." said Vinit Bolinjkar, Head of Research, Ventura Securities.