By Sachin Murdeshwar
Mumbai: DHFL expresses concerns over ICRA’s re-rating of its Commercial papers (CPs) citing it is not merit-based and is unwarranted. DHFL clarifies that ICRA chose to go ahead with the rating action without considering the company’s intent of extinguishing CP outstanding by March end – which was well-acknowledged by ICRA in their 
In DHFL’s borrowings, ICRA has rated only the short term instruments of company namely Commercial Papers of only Rs. 1,525 crores out of a rated amount of Rs. 8,000 crores, which form less than 2% of the company’s outstanding borrowings. Post repayment of outstanding CP of Rs. 1,525 crores, DHFL will not have any outstanding commercial paper rated by ICRA.
Expressing views over this rating action, Mr. Kapil Wadhawan, Chairman and Managing Director said “I am surprised with ICRA’s rating action for DHFL’s CPs which is not at all merit-based. This comes barely three weeks after the company was downgraded and kept on watch by all the rating agencies. Since then, no material event has taken place which would have compelled the rating agency to review the ratings in less than a month’s time. This rating action has been taken in spite of repeated representations to the rating agency. DHFL’s Commercial Papers ratings were reaffirmed by ICRA ratings in September 2018, followed by another revalidation in December 2018. The only paper that is rated by ICRA is the short term CP rating comprising of the remaining 2% and that too the outstanding amount is Rs. 1,525 crores. ICRA’s uncalled-for action triggers question on the motivation of this rating action, especially when the company is slowly getting back to normalcy and has met each of its obligations on time. However we will take all remedial measures to protect the interests of all our stakeholders and continue to service all our obligations as we have done in this industry crisis since September 2018.”
Justifying DHFL’s strong stance, Mr. Wadhawan said, “While the September 2018 situation impacted the HFC/NBFC sector as a whole, DHFL made substantial strides in overcoming the liquidity challenge. We have been buying back CPs in advance by a couple of days/weeks depending on our cushion of liquidity availability. CPs are the only instrument we had communicated that we will buyback. The company extinguished almost 98% of its CPs and cleared obligations worth almost Rs. 18,000 crores till 31st December 2018 which included Rs. 9,965 crores of CPs. The total redemption for CPs till the month of August is Rs. 1,525 crores which is not sufficient to permit this rating action. While fresh funding had practically dried down for the whole sector, only route to make cash available and lower our liabilities was through sell-down of wholesale or retail assets. Accordingly, the company sold down its strategic retail assets including Aadhar to ensure there is adequate liquidity. As a result, the company has sufficient cash reserves and investments today equivalent to about Rs. 4,500 crores. The company’s primary focus has always been the retail segment. We have also gone out and sold project loans which presumably carry higher risk as compared to retail loans. With regards to fall in stock prices, DHFL should not be singled out in the process. Overall, there has been a bearish trend that has affected the stock prices of most companies specifically the NBFCs. In view of DHFL’s current standing, resilience and efforts, this action by the rating agency was definitely unwarranted. We had expected ICRA to instead laud the company’s efforts for its commitment towards its financial obligations despite the situation.”
Elaborating on the future steps, Mr. Wadhawan added, “With regards to liquidity, almost Rs. 13,000 crores of the portfolio is available for sell-down right now if we were to exercise that option. Overall, the company has nearly Rs. 33,000 crores of retail portfolio with required seasoning. At the same time in the next 6 months, we have almost Rs. 7,000 crores of payout which the company can comfortably manage with inflows of more than Rs. 2,000 crores per month from the regular EMI/PMIs. Further, DHFL is seeking the right strategic partner and has engaged with large potential partners, and an announcement will be made as soon as a development is finalised.”