DHFL Shares Crash by 42%, Raises Concerns It Could Default on Bond Repayments

October 17, 2018
capital market

 

Dewan Housing Finance Corporation (DHFL) share price took a significant plunge to 42% as of September 21, 2018. This raised fears over whether the company would default on its bond payments. This is not only specific to DHFL, shares from the home-financing sector in India, in general took a downward dip, therefore also taking down related markets along with them.

DHFL Reassures Media & Investors

In tandem with this, Indiabulls Housing Finance also fell by 8.18%, LIC Housing by 5.05% and PNB Housing Finance by 4.92%, reported the Economic Times. DHFL’s chairman Kapil Wadhwan assured news outlets that liquidity was not the company’s problem as they had assets worth Rs.10,000 Cr that could be liquidated. Wadhwan has stated that this unprecedented fall in stock was a reason that was sentimental – as it fell following rumours of a liquidity crisis. Wadhwan sought to assure media the financial health of the company and denied rumours of default.

Kapil Wadhwan quoted to the Economic Times, has reassured everyone panicking over the slump in market stocks that DHFL has not defaulted on any bonds or repayment in the past. He iterated that there had not been any instance of a delay on of DHFL’s repayment liabilities. He further was quoted as saying that they do not have exposure to the IL&FS. He insisted that their asset quality was strong with well-diversified borrowing from over 31 banks and masala bonds.

Potential Causes For the Slump

Media outlets have speculated that the real estate market has been struggling under policy pressure such as RERA, GST and demonetisation. This report stems from analysts revealing that weak sales and rising cost pressures, compounded by negative news flow might have led to the current slump in market shares of Housing Finance Companies (HFC).

Business World has also observed how DSP Mutual Fund’s selling of its DHFL bond selling might have led to a market panic that DHFL is on the way of some default.

Predictions for the Future

Wadhwani has assured that the company has assured cash-flow to sustain them for the next 6 months. They remain an AAA rated issuer. Experts have predicted that since DHFL’s liquidity is strong and even if the rumors were true, the stock may only marginally fall as DHFL will have cash surplus even after all their repayments in March 2019.

Conclusion

Experts predict that the best bet is to hold your horses and wait till the stock stops yo-yoing around for a while, until further actions taken on selling it. Though it has caused concern and cascaded into related markets, investor panic is to be avoided seems to the consensus among reporting news outlets and stock market experts.

Deven Choksey, Managing Director of KR Choksey Investment banking in Business Standard that since there is no likelihood of a default on their loans by Indiabulls or DHFL, the companies have just been exposed to negative sentiment that led to seller-panic. It is predicted that the selling has been over-done and the NBFC stocks will be on their way to a robust recovery very soon.

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