DHFL Default Crisis

On June 4 DHFL missed its interest payments on certain NCDs. It downgraded to ‘default’ by all major rating agencies yesterday. CRISIL and ICRA assigned ‘D’ rating to companies commercial papers, anticipating a default, while CARE Ratings marked D, or default, to all long-term facilities, including public  NCDs of Rs 29,000 crore and fixed deposits of Rs 8,940 crore. Brickwork Ratings downgraded debt valued at over Rs 58,000 crore earlier in April.

Mutual fund investors holding debt of Dewan Housing Finance Corporation Ltd (DHFL) took the biggest hit. The net asset values (NAVs) of several debt schemes fell by 6-53 % on Tuesday, reflecting the marked-down value of their holdings in DHFL paper.

DHFL Pramerica Medium Term Fund, with assets of Rs 35 crore, saw its NAV plunge 52.99 %. The fund has the highest holding of DHFL paper at 37.42 %. Another scheme, DHFL Pramerica Floating Rate Fund — with assets of Rs 13 crore — saw its NAV plummet 48.4 %, with one-year returns dipping to 44.2 %. Tata Corporate Bond, which has assets of Rs 184 crore, saw its NAV fall 29.7 %, with one-year return at a negative 30.16 %. As many as 10 debt schemes saw their NAVs erode by more than 10 % on Tuesday.

About 22 mutual funds together owned DHFL paper worth Rs 5,236 crore across 163 debt schemes as on April 30, 2019. UTI Mutual Fund and Reliance Nippon Asset Management are among the largest fund houses holding DHFL paper.

Key implications

  1. High risk of debt outflows following haircut implying strong pressure on HFCs/NBFCs. Deep NAV cuts would mean new debt inflows will be stalled further since the AUM of debt mutual funds stagnated since August 2018
  2. The strong wholesale funding players are able to get the market share over medium term as incremental funding to this segment gets increased.
  3. NBFCs credit spread over G-secs could stay elevated for much longer even the one with good funding access.                                                                                                                                                                                                                                                                                                  


Author Image


Recent Post

  • PC Jeweller Demerges its Expo..

    What’s the deal? PC Jewelers recently announced that it would demerge its Export Division and merge with its wholly owned subsidiary - PCJ Gems & Jewellery Limited. Company c..

  • Insurance- Introduction

    Risk and uncertainty are associated with life in some of the other ways. These risks and uncertainties are increasing daily because of the increment in the speed of life. For example, i..

  • Rail Vikas Nigam Ltd. IPO

      Offer Details Price band Rs 17-19 Per Equity Share Offer Open Date Mar 29, 2019 Offer Close Date Apr 03, 2019 Lot Size..

  • Tech Mahindra Buyback

    The Board of Directors of Tech Mahindra Ltd. approved a share buyback for its investors on Feb 21, 2019. The details of the buyback include: Ex-Date: March 5th, 2019 Record Date: Marc..

  • BHEL Buyback

    The Board of Directors of BHEL approved a share buyback for its investors on Oct 25, 2018. The details of the buyback include:  Record Date: November 6th, 2018 Buyback price: Rs...