DLF's ratings likely to fall post ban, ratings firms to take a call
The Securities and Exchange Board of India banned DLF and six of its executives from accessing the capital market for three years.
By Saikat Das, ET Bureau | Updated:
MUMBAI: DLF's bond ratings are under threat as the ban on the real estate major and its top brass on accessing the capital market is likely to strain its financial flexibility. A downgrade will increase the cost of funds for the company which already spends heavily on servicing its debt.
Domestic ratings firm Crisil on Wednesday placed its ratings of DLF's bank facilities and debt instruments on watch for a possible downgrade. The company is currently rated 'A'. Icra, another local ratings firm, too is in talks with the company to dig up financial details and is likely to make a call on its rating action after DLF reports its results for the July-September quarter, two market sources told ET.
"We are in touch with DLF," said Icra's managing director and chief executive, Naresh Takkar. He didn't elaborate. DLF didn't respond to an email seeking comment.
The Securities and Exchange Board of India on Friday banned the company and six of its executives from accessing the capital market for three years, accusing them of disclosure violations when DLF made an initial public offering in 2007. The company this week said it would defend its case. Crisil said the regulator's order would constrain DLF's financial flexibility, which has been one of its key rating strengths. "More than 90% of the company's debt outstanding consists of bank loans, and has, therefore, not been contracted from the capital markets," the firm said. "However, the order will impact DLF's plans to raise funds through capital market instruments such as equity, commercial mortgage-backed securities (CMBS) and real-estate investment trusts over the medium term."
In May-June this year, the company raised Rs 900 crore collectively for two subsidiaries by selling CMBS – the first of its kind in India. Some top mutual fund houses invested in the debt schemes. The investors in these instruments are unlikely to face any risks because they are backed by strong revenuegenerating assets, say market experts.
"There is no (default) concern over DLF's CMBS due to the product's inherent features like interest coverage ratio, pool of cash flow from monthly mall rentals," said Laxmi Iyer, chief investment officer, debt, at Kotak Mutual Fund.
Domestic ratings firm Crisil on Wednesday placed its ratings of DLF's bank facilities and debt instruments on watch for a possible downgrade. The company is currently rated 'A'. Icra, another local ratings firm, too is in talks with the company to dig up financial details and is likely to make a call on its rating action after DLF reports its results for the July-September quarter, two market sources told ET.
"We are in touch with DLF," said Icra's managing director and chief executive, Naresh Takkar. He didn't elaborate. DLF didn't respond to an email seeking comment.
The Securities and Exchange Board of India on Friday banned the company and six of its executives from accessing the capital market for three years, accusing them of disclosure violations when DLF made an initial public offering in 2007. The company this week said it would defend its case. Crisil said the regulator's order would constrain DLF's financial flexibility, which has been one of its key rating strengths. "More than 90% of the company's debt outstanding consists of bank loans, and has, therefore, not been contracted from the capital markets," the firm said. "However, the order will impact DLF's plans to raise funds through capital market instruments such as equity, commercial mortgage-backed securities (CMBS) and real-estate investment trusts over the medium term."
In May-June this year, the company raised Rs 900 crore collectively for two subsidiaries by selling CMBS – the first of its kind in India. Some top mutual fund houses invested in the debt schemes. The investors in these instruments are unlikely to face any risks because they are backed by strong revenuegenerating assets, say market experts.
"There is no (default) concern over DLF's CMBS due to the product's inherent features like interest coverage ratio, pool of cash flow from monthly mall rentals," said Laxmi Iyer, chief investment officer, debt, at Kotak Mutual Fund.
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