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CRISIL assigns ‘negative’ outlook to DLF’s loans, debt

Rating agency CRISIL has assigned ‘Negative’ outlook to real estate major DLF Ltd’s long-term loans and debt instruments on account significantly high debt level, weak operating cash flows. 

The outlook also factors in residual uncertainty over regulatory issues. However, rating agency has removed ratings on instruments from ‘Watch with Negative Implications’. It reaffirmed the ratings at ‘A’. 

DLF’s debt (as on March 31, 2015) is expected to be higher than CRISIL’s earlier expectation. This is on account of weak operating cash flows and the company’s inability to raise funds through equity issuance because of the Sebi order, CRISIL said in a statement. 

The elevated debt level will also result in substantially weak debt protection metrics. Delhi-based real estate player is actively working on plan to reduce debt. 

CRISIL believes that DLF will reduce its debt (net of liquidity) to around Rs17,500 crore by end of March 2016, from Rs.20,300 crore at end of December , 2014. 

The steps to cut debt inludes disposal of non-core assets, induction of strategic investors in a few large residential projects. It also plans to raise funds through fresh equity issuance and REITs over the medium term, CRISIL said. 

The company has witnessed some improvement in its operating cash flows in the past few months. 

Though the SAT order is in favour of DLF, Sebi may appeal before the Supreme Court. Any adverse outcome could delay DLF’s debt reduction plan. 

The rating action follows Securities Appellate Tribunal’s (SAT’s) order dated March 13, 2015, in reply to DLF’s appeal setting aside the order of Securities and Exchange Board of India (Sebi) dated October 10, 2014. 

CRISIL had placed the ratings on watch in October 2014 following the Sebi order restraining DLF and key executives from accessing the securities market and trading in secutiries for three years.

The Sebi order was about violation of regulations on disclosure with respect to DLF’s initial public offering (IPO).  

However, SAT’s favourable order will enable DLF to access capital markets and will support its financial flexibility, which is its key rating strength, CRISIL said.