Description

BSE announces modifications to financial covenants for Aye Finance Ltd's debt securities, revising PAR>90 and write-offs ratio limits in the Debenture Trust Deed and Key Information Document.

Summary

BSE has issued an update regarding modifications to financial covenants for debt securities of Aye Finance Ltd. The changes affect both the Debenture Trust Deed (Clause 10.3(a)(iv)) and Key Information Document (Section 6.2.2(a)(iv)), specifically revising the PAR>90 and write-offs ratio requirements.

Key Points

  • Financial covenant ratio (PAR>90 + write-offs to Gross Loan Portfolio) has been revised from a uniform 8% limit
  • New tiered structure implemented with relaxed limits
  • Changes apply to both Debenture Trust Deed and Key Information Document
  • Modification reflects adjusted risk parameters for the company’s lending portfolio

Regulatory Changes

Previous Provision:

  • Company required to maintain ratio of A:B not more than 8%
  • A = aggregate of PAR>90 and write-offs for trailing 12 months
  • B = Gross Loan Portfolio

Revised Provision (Two-Tier Structure):

  1. Until March 31, 2026: Maximum ratio of 12% (fifty percent increase from original limit)
  2. From April 1, 2026 until Final Settlement Date: Maximum ratio of 10% (25% increase from original limit)

Formula remains: (PAR>90 + Write-offs for trailing 12 months) / Gross Loan Portfolio × 100

Compliance Requirements

  • Aye Finance Ltd must maintain the revised PAR>90 and write-offs ratios as per the new tiered structure
  • Debenture trustees must monitor compliance with modified financial covenants
  • Debenture holders should note the relaxed covenant requirements
  • Company must ensure Gross Loan Portfolio calculations align with covenant definitions

Important Dates

  • March 31, 2026: End of first tier with 12% maximum ratio
  • April 1, 2026: Commencement of second tier with 10% maximum ratio
  • Final Settlement Date: End date for modified covenant applicability (as per debenture terms)

Impact Assessment

For Aye Finance Ltd:

  • Provides increased operational flexibility in managing loan portfolio
  • Allows higher tolerance for non-performing assets and write-offs in near term
  • May indicate anticipated stress in asset quality requiring covenant relief

For Debenture Holders:

  • Increased credit risk due to relaxed asset quality requirements
  • Higher permissible levels of PAR>90 may impact recovery expectations
  • Should monitor company’s actual performance against new thresholds

Market Implications:

  • Covenant modifications typically signal borrower request due to performance pressures
  • Tiered approach suggests expectation of improvement after initial period
  • Investors should assess whether relaxed covenants adequately protect their interests

Impact Justification

Material change to financial covenants affecting debenture holders of Aye Finance Ltd, with relaxed PAR>90 ratios indicating potential asset quality concerns but providing operational flexibility