Mumbai
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CRISIL’s ratings of ‘CRISIL AA(SO)/Stable’ on the commercial mortgage-backed securities (CMBS) of DLF Emporio Ltd and DLF Promenade Ltd remain unaffected by the order passed by Securities and Exchange Board of India (SEBI) on October 10, 2014, relating to the parent DLF Ltd (DLF). This is because the structural features of the CMBS instruments (issued as non-convertible debentures; NCDs) allow the ratings to be delinked from the parent company’s credit risk profile to a large extent. Moreover, the refinancing for both transactions is expected to happen only after the SEBI order on DLF expires. On October 10th, SEBI passed an order restraining DLF and six of its executives from accessing the securities market, and from buying, selling or dealing in securities, directly or indirectly, for a period of three years. The order is in relation to violation of SEBI regulations on disclosure with respect to its IPO. The ratings on both CMBS instruments continue to reflect the quality of the underlying properties, their healthy interest service coverage, comfortable loan-to-value ratio of less than 50 per cent, liquidity support, and the structural features of the instrument. As per the transactions’ structure, the issuer is required to pay only interest on the NCDs over the next five years, which is supported by the healthy interest coverage ratios of both the malls. Additionally, even if the issuers are unable to refinance the NCDs by the end of the indicative maturity date, the structural features empower the debenture trustee (DT) to repay investors by selling the underlying properties or pledged shares by the legal final maturity date, which is two years after the date of refinancing. Such structural features allow the ratings on the transactions to be significantly delinked from the parent rating. Furthermore, the refinancing of the NCDs is to be done at the end of five years-two years after the current SEBI order expires-thus offsetting any potential refinancing risk to the transactions. CRISIL believes that the malls’ operations will not be affected by the SEBI order. Given the stable rental revenues that the malls generate, any likelihood of a need for refinancing during the period of the order is minimal. To refer to the rating rationales for either transaction, please refer to the link below:
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