HUDCO - Fitch Ratings update

Ratings Linked to Sovereign: Fitch Ratings classifies Housing and Urban Development Corporation Limited (HUDCO) as a government-related entity (GRE) that is credit-linked to the Indian sovereign (BBB-/Stable/F3). Fitch sees HUDCO as an important GRE and hence believes there is a high likelihood of extraordinary support from the state, if needed.

'Strong' Status, Ownership, Control: HUDCO is 89.81%-owned by the state after a 10.19% stake was divested during an IPO in May 2017. The government has proposed a further 10% divestment following a requirement from the Securities and Exchange Board of India, but it expects to maintain a majority shareholding in HUDCO. The Ministry of Housing and Urban Affairs (MOHUA) controls HUDCO through setting the company's operational and financial targets, including the placement of two representatives on the board.

'Very Strong' Support Record, Expectations: The government has provided funding through access to tax-free bonds, issuance of government fully serviced bonds, guarantees on foreign currency debt from multilateral institutions and waivers on the guarantee fees for the debt. HUDCO is allowed to have higher financing exposure to government agencies, which is not available for other housing-finance companies.

The state also provided guarantees for loans extended to its agencies' projects, which made u p 66% of HUDCO's total loan portfolio in the financial year ended March 2019 (FY19).

'Very Strong' Socio-Political Implications: Affordable housing is a priority for India's urban growth and HUDCO plays an important role in the implementation of the government's urbanisation programme. Fitch believes HUDCO cannot be easily substituted as it is the sole policy entity providing financing and other non-financing aid for the sector. The attribute was assessed as 'Very Strong' as a default could disrupt the availability of affordable housing and urban infrastructure, which are high on the government's political agenda.

'Very Strong' Financial Implications: Fitch believes HUDCO is a proxy funding vehicle for MOHUA to finance the government's high-priority programmes by allocating its housing subsidies. It is also the government's tool in stimulating urban growth. A financial default would have significant implications for the government and wider investor sentiment towards the sovereign and other GREs.

Standalone Credit Profile: Fitch has not assigned HUDCO a Standalone Credit Profile as it is difficult to detach the entity from the govemment framework in which it operates. In addition, HUDCO's entire loan book is directed towards its core policy focus segment.

Shares of Housing and Urban Development Corporation Ltd was last trading in BSE at Rs.25.55 as compared to the previous close of Rs. 25.35. The total number of shares traded during the day was 210141 in over 785 trades.

The stock hit an intraday high of Rs. 26.05 and intraday low of 25. The net turnover during the day was Rs. 5379014.

Source : Equity Bulls

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