Mumbai: Shares of Dewan Housing Finance (DHFL) crashed 42% Friday on concerns that it could default on outstanding bond re-payments, with many in the equity markets holding the belief that exposure to troubled financier IL&FS could further stretch the finances at the mortgage lender.
Shares of the company, which helps many Indians step on to the property ladder for the first time, began plunging around noon when DSP Mutual Fund sold about ₹300 crore of DHFL papers at 11% in the secondary market. The sale triggered concerns of tight liquidity, spotlighting the potential inability of the home financier to raise funds at lower rates.
As shares of the entire home-financing sector went into a tailspin, dragging the broader markets with them, the DHFL management spoke to the media to underscore the financial soundness of the company, denying prospects of a default. It also said that the financier has low fund-raising dependence – of about 7-8% – on commercial papers.
“The stock fell due to unfortunate panic in the system following rumours of a liquidity crisis,” said Kapil Wadhawan, chairman, DHFL.
“Liquidity is not an issue. We have liquidity of ₹10,000 crore and we do not carry too many CPs in our books.”
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In lockstep with DHFL, Indiabulls Housing Finance fell 8.18%, LIC Housing 5.05% and PNB Housing Finance 4.92%. By contrast, the Sensex fell 0.75%, although the benchmark had declined steeply mid-afternoon.
“There is no pressure on cost of funds or liquidity as we have raised ₹3,400 crore in the past seven days at 7.9-8.05%,” said Gagan Banga, vice-chairman, Indiabulls Housing Finance. “We have set up a repayment trust with Axis Bank and all the payments are made on time.”
DHFL, meanwhile, raised ₹1,700 crore through private placement of non-convertible debentures earlier this month at 9.25%.
Wadhawan said that IL&FS has been a contagion issue and would surely impact the perception for the industry. He said that Dewan Housing Finance has sufficient liquidity to take care of any redemptions for the rest of the year. He expects redemption liability of ₹6,000-7,000 crore until March 2019.
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“DHFL has neither defaulted on any bonds or repayment, nor has there been any single instance of a delay on any of its repayment liabilities,” said Wadhawan. “We do not have any exposure with IL&FS.”
Dewan Housing Finance continues its loan growth disbursements in the affordable housing segment going forward.”
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The company borrows around ₹50,000 crore a year through instruments, including external commercial borrowing, bank lines, commercial papers and securitisation. It has raised ₹11,000 crore through NCDs this year and has the option to raise another ₹4,000 crore until March 2019.
“The company’s CP book shall be about 6% of our total borrowings and the total assets and liability book is over ₹1 Lakh crore. We will remain cash surplus even after considering repayment till March 2019 of all our liabilities on account of CP, NCD, interest payment, bank dues etc. We are extremely well-matched in case of the ALM position,” said Wadhawan.
“Our borrowing is well diversified with a banking consortium of 31 banks, NCDs, CPs, ECB and masala bonds. We are one of the deposit taking HFCs with a public Deposit portfolio of ₹10,803 crore,” he added.
While yields have hardened 100 basis points to 8% over the last one year, the company’s cost of funds has gone up to 8.5% and net interest margins remained at 3.44%. The 10-year G-sec closed at 8.08% Friday.
“We can raise $750 million from the ECB window and another ₹4,000 crore through NCDs this year,” said Wadhawan.
Dewan Housing Finance shares closed at ₹351.55 on the Bombay Stock Exchange, down 42.43%.
Stretched finances at the IL&FS Group have investors worried about a liquidity crisis in the financial sector. Rating companies have already downgraded IL&FS to ‘D’ from ‘AAA’, highlighting the likely liquidity stress for non-banking finance companies (NBFCs).
