Description

Revision of financial covenants for Five-Star Business Finance Limited debt securities, relaxing DPD thresholds for gross loans as percentage of AUM.

Summary

BSE has issued an update regarding the debt securities of Five-Star Business Finance Limited. The circular announces revisions to Schedule IX Financial Covenants, specifically relaxing the thresholds for Days Past Due (DPD) greater than 90 days as a percentage of Assets Under Management (AUM). The revised terms provide increased flexibility in covenant compliance.

Key Points

  • Gross Loans with DPD >90 days as % of AUM threshold increased from <2.50% to <3.25%
  • Net Loans with DPD >90 days (less ECL) as % of AUM threshold increased from <1.50% to <2.25%
  • Revisions apply to Sr.4 of Schedule IX Financial Covenant
  • Both gross and net DPD covenant thresholds have been relaxed by 0.75 percentage points

Regulatory Changes

Existing Terms (Schedule IX Financial Covenant - Sr.4)

  • Gross Loans with DPD greater than 90 days as a percentage of AUM < 2.50%
  • Gross Loans with DPD greater than 90 days less ECL on Gross Loans with DPD greater than 90 days as a percentage of AUM < 1.50%

Revised Terms (Schedule IX Financial Covenant - Sr.4)

  • Gross Loans with DPD greater than 90 days as a percentage of AUM < 3.25%
  • Gross Loans with DPD greater than 90 days less ECL on Gross Loans with DPD greater than 90 days as a percentage of AUM < 2.25%

Compliance Requirements

  • Five-Star Business Finance Limited must comply with the revised financial covenant thresholds
  • Debenture trustees and debt investors should note the modified covenant terms
  • The company must maintain gross loans with DPD >90 days below 3.25% of AUM
  • Net loans with DPD >90 days (after ECL adjustments) must remain below 2.25% of AUM

Important Dates

  • Circular Date: January 19, 2026
  • Effective date not explicitly specified in the provided content

Impact Assessment

Credit Risk Implications

The relaxation of financial covenants suggests potential deterioration in asset quality or preemptive action by the company to avoid covenant breaches. The 0.75 percentage point increase in both gross and net DPD thresholds provides additional headroom for the issuer.

Investor Considerations

  • Debt security holders should monitor the company’s asset quality metrics closely
  • The covenant relaxation may indicate stress in the loan portfolio or challenging operating environment
  • Increased risk of higher non-performing assets should be factored into investment decisions

Operational Impact

  • Provides Five-Star Business Finance Limited with greater operational flexibility
  • Reduces the immediate risk of covenant default
  • May allow the company to manage collections more pragmatically during challenging periods

Impact Justification

Relaxation of financial covenants indicates potential asset quality concerns but provides operational flexibility to the issuer. Relevant for debt investors monitoring credit risk.