Press release from Business Wire India
Source: Brickwork Ratings
Thursday, August 13, 2009 06:33 PM IST (01:03 PM GMT)
Editors: General: Consumer interest, Economy; Business: Advertising, PR & marketing, Banking & financial services, Business services, Construction, Financial Analyst, Real estate, Stock exchanges
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Brickwork Ratings has Assigned BWR AAA for Housing & Urban Development Corporation Ltd.'s (HUDCO) Proposed Unsecured Non Convertible Debentures Issue of INR 10 billion with a 10 Year Tenure
Bangalore, Karnataka, India, Thursday, August 13, 2009 -- (Business Wire India) -- Brickwork Ratings has assigned BWR AAA (Pronounced BWR Triple A ) for HUDCO's proposed issue of INR 1000 crore or INR 10 billion Unsecured Non convertible Debenture with a 10 year tenure and with a green shoe option of INR 1000 crore or INR 10 billion. Brickwork Ratings' 'BWR AAA' stands for an instrument that is considered to offer EXCELLENT credit quality in terms of timely servicing of principal and interest obligations. Brickwork Ratings has, inter alia, factored the following significant features concerning HUDCO in assigning the rating:
1. 100% GoI ownership and the support provided by it to HUDCO
2. The important role played by HUDCO and the appreciable performance achieved by it vis-à-vis the various parameters stipulated in the MoU with the GoI in promoting housing and infrastructural development in the country, which is a national priority.
3. The strong recommendations made by the high powered committee appointed by the Govt. to continue to provide full support by the Govt. to HUDCO, for a period of seven years to enable it to rejuvenate and continue to play its vital role in the national economy.
BWR has essentially relied upon audited financial statements and projected financial figures, information and clarification provided by HUDCO.
Company profile
HUDCO was established on April 25, 1970 as a fully owned enterprise of the Government of India. In its almost 40 years of operations, HUDCO has strived to provide living Housing to the different strata of the society with a thrust on the needs of the Low Income Group (LlG) and Economically Weaker Sections (EWS) and building the much needed infrastructure. HUDCO's loan approvals has seen an increase during 2007-09 from INR 122163 Crore to 14754 Crore and loan disbursement has grown from INR 3452 Crore to INR 4019 Crore during the period 2007-09.
In terms of Earnings, total income is almost stagnant at INR 2713 crores during FY-09 compared to INR 2729 crores in FY-08. This moderate growth in income is due to low disbursements in loans as mentioned above. However, HUDCO has posted increase in net profit of 7.21% from INR 374 crores during FY 2008 to INR 401 crores INR FY 09. HUDCO's net interest income recorded a growth of 0.65% during the same period. HUDCO's net worth has improved from INR 4191 crores in 2008 to INR 4668 crores in 2009
Considering the fact that HUDCO caters to the Economically Weaker Sections (EWS) and Lower Income Group (LIG), it has still managed to improve its asset quality. Since FY 2005 HUDCO had shown a decline in NNPA almost by 5%. GNPA for HUDCO was 8.60% for FY-09 compared to 9.70% in FY-08. HUDCO has also reported a net decrease in NNPA from 5.72% in 2008 to 4.87% in 2009. It makes more than 80% of the socially oriented housing loans to EWS/LIG against which guarantee from state governments are available. Signing the MoU with Ministry of Housing & Urban Poverty Alleviation (MHUPA) has helped HUDCO in its recoveries. The mission of HUDCO is to continue to promote sustainable habitat development to enhance the quality of life.
The GoI, Ministry of Housing and Urban Poverty Alleviation, set up a High Powered Committee to rejuvenate HUDCO in May, 2008 with a view to strengthen its financial position and expansion of activities for better services to poor and weaker sections of the society. Shri Ashok Jha, IAS (Retd.), Former Finance Secretary was the Chairman of the Committee. Following are some of the major recommendations from the committee:
-- Permit HUDCO to raise funds under the purview of Municipal Tax Free for capital investment in urban infrastructure
-- Facilitating HUDCO with a `Letter of Comfort' from the Government, for a period of 3 years, to enable it to get the highest credit rating (AAA), so that its borrowing cost is more competitive
-- Equity support of INR 100 crores per year for the next seven years is given to HUDCO
-- Allowing plan funds pre-emption towards repayment of overdue of HUDCO against the loans availed by State Governments and their para-statals backed by State Govt. If this happens, then this will reduce HUDCO's NPA to less than 2%, which will be in line with the norms of the industry
-- Permission to issue 54(EC) Bonds: At present 54 EC bonds are being marketed at an all inclusive cost of 7.5% as compared to HUDCO's current borrowing cost of 12%. Permission to issue 54(EC) Bonds is likely to result in a saving of INR. 608 crores in three years. This will also address the issue of the asset and liability mismatch
-- Allowing HUDCO to follow RBI norms in respect of credit concentration, which make due allowances for infrastructure projects
-- Plough back of dividend: HUDCO may be permitted to plough back the payment of dividend including dividend tax for a period of 7 years beginning with 2008-09. This would result in a saving of INR. 385 crore over a period of seven years
Rating Outlook:
Since its inception HUDCO has been serving the economically weaker sections and people from low income group as well as building urban infrastructure, so vital to economic growth. The asset quality of HUDCO will further improve as MUHPA has agreed to help HUDCO with recoveries. Implementation of Jha Committee's strong recommendation are vital to HUDCO's sustainability as they not only give substantial relief to HUDCO but would also enable its access to low cost fund which is very essential for improving its performance and financials and continuing to play its vital role in the national economy. While HUDCO's capabilities in continuing with its mission to promote sustainable habitat development to enhance the quality of life of the Indian public is beyond doubt, the key factors which will influence HUDCO's future growth will be its access to low cost funds as well as improving its asset quality and efficiency.
Copyright ©, 2009, Brickwork Ratings.
Brickwork Ratings has assigned the rating based on the information obtained from the issuer and other reliable sources, which are deemed to be accurate. Brickwork has taken considerable steps to avoid any data distortion; however, it does not examine the precision or completeness of the information obtained. And hence, the information in this report is presented "as is" without any express or implied warranty of any kind. Brickwork does not make any representation in respect to the truth or accuracy of any such information. The rating assigned by Brickwork should be treated as an opinion rather than a recommendation to buy, sell or hold the rated instrument and BWR shall not be liable for any losses incurred by users from any use of this report or its contents. Brickwork has the right to change, suspend or withdraw the ratings at any time without citing any reasons.
CONTACT DETAILS
Praveen Prakash, Analyst Contact, Brickwork Ratings, 1-860-425-2742, praveen.prakash@brickworkratings.com
Kumari Pooja, Analyst Contact, Brickwork Ratings, 1-860-425-2742, kumari.p@brickworkratings.com
Anitha G, Media Contact, Brickwork Ratings, 1-860-425-2742, media@brickworkratings.com
Ramaswamy Annam, Director - Business Development, Relationship Contact, Brickwork Ratings, 1-860-425-2742, ramaswamy@brickworkratings.com
KEYWORDS
CONSUMER, ECONOMY, MARKETING, BANKING, BUSINESS SERVICES, CONSTRUCTION, Financial Analyst, REAL ESTATE, STOCK EXCHANGES
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