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On Friday, 21st September 2018, around noon, shares of Dewan Housing Finance Ltd. (DHFL) started crashing at an alarming rate and after going down by as much as 60% closed the day with a loss of 42%. The markets which were already under pressure on account of IL&FS debt downgrade,  panicked as news came out that  on the earlier trading day DSP Mutual fund sold 300 crore of DHFL CP (Commercial Paper) at a yield of  11% which was considered high for a AAA rated company like DHFL.  This was coupled with rumors that DHFL rating had been downgraded, even rumors of default by DHFL and reports that it may be holding investments in troubled IL&FS. Incidentally DSP Mutual funds held considerable position in IL&FS in its various schemes and its selling DHFL shares at a higher yield was construed as signs of weakness by investors in DHFL counter as well and effects were also visible in trading in DHFL NCDs at higher yields in the Debt market. While it was anticipated  by market that the cost of borrowing for HFCs and NBFCs is likely to go up and they may face challenge in raising money in the light of recent news on IL&FS, the reaction was quite knee jerk.

The management immediately came out with denial of any default or exposure to IL&FS and stated that it had enough liquidity of Rs. 10000 crore to meet all its obligations till March 2019. The stock has however continued to be under pressure despite such assurances  along with similar movements in stocks of other HFCs like Indiabulls housing Finance, PNB Housing Finance etc. and a large number of NBFC’s including Edelweiss, Magna Finance, Cholamandalam, Shriram Transport etc. There have been concerns on high leverage of DHFL (10 times equity) compared to other Strong HFCs and concerns about  short term Asset Liability mismatch. Further Fixed Deposits by DHFL are in range of Rs. 10000 crore and these may also face some pressure from Fixed Deposit holders due to considerable negative publicity on account of sudden slump in shares. On the +ve side DHFL has demonstrated some steps to fight back which include the company buying back about 500 crore of NCD prematurely. These were mostly 11% NCDs issued in 2014 and were to mature in June, 2019. After the fateful event the rating agencies has reconfirmed AAA rating and further Crisil on 27th Sept, 2018 has reconfirmed its “A1+” rating on 15000 crore CP of the company. Apart from the share price, ability of DHFL to raise money from market after present turmoil and at what rates may have an important bearing on how effectively it can emerge from this situation.

DHFL NCDs have been on a downward spiral in the retail NCD market in this period. However volumes in Retail NCD markets are low and hence in this post we see depicting how DHFL NCDs have traded in the secondary wholesale Debt market.  It is bit early to reach any conclusions based on above, but discerning investors may be able to draw inferences as we cover the time period from the day just before the start of this event till date (3/10/18)  and shall update it for few more days from now.

DHFL: Recent Deals in Secondary Debt Market