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DHFL’s double default in one month

Crisis-hit mortgage lender Dewan Housing Finance Ltd. (DHFL) has defaulted on its repayment obligations for a second time this month setting into motion a further crisis at the already embattled NBFC.

DHFL, in a regulatory filing on Tuesday announced that it made only partial payment of ₹ 150 crore out of a total of ₹ 375 crore of commercial paper due for repayment to a dozen investors. It however, further went on to say that it would pay the default ₹ 225 crore, which is 60% of the total amount, over the next couple of days once its surplus cash flow position improves.

Earlier this month on June 4th just before the Eid festival, DHFL defaulted on interest payments of ₹ 850 crore on its non-convertible debentures, following which its credit rating was downgraded to default or “D” by rating agencies Crisil and Icra. However, the mortgage lender was able to pay the interest within the seven day grace period given by the bondholders.

DHFL has been hit by one adversity after another since the last ten months. It was the worst casualty of the liquidity crisis that engulfed the NBFC sector in September of last year when defaults in IL&FS dried up fund flows and caused an abnormal increase in the cost of funds for mortgage lenders and NBFCs.

Then, in January, media outlet Cobra Post, that is famous for its sting operations, came out with a startling revelation that claimed DHFL had diverted loans to the tune of ₹ 31,000 crore via shell companies and siphoned off this money to illegally enrich their promoters, the Wadhawan family.

A series of defaults, downgrades and asset sales later, the company that was once India’s third largest home financier, now is just managing to stay afloat. All these events have managed to take a big toll on its share price. From trading at close to levels of ₹ 680 per share in September, just before the liquidity crisis, DHFL’s share price now stands at a level just below ₹ 80 per share, which translates into a loss of approximately 90% since then.

The company is however making an effort to meet its outstanding debt obligations by selling assets, and has managed to repay close to ₹ 40,000 crore of its financial obligations since September; it claimed in the regulatory filing.

Over the past few months DHFL has sold retail loans worth ₹ 30,000 crore via the securitization route. It has also sold several other strategic retail assets. Further, it has also sold ₹ 1,375 crore worth of wholesale loans to a foreign asset manager and a loan portfolio worth ₹ 2,000 crore to offshore investors in an attempt to raise funds to meet repayment obligations.

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