DHFL lenders brace for haircut after foreign bidders back out of race

Topics DHFL | sbi | Adani Group

DHFL was the first company to be referred to the National Company Law Tribunal (NCLT) by the Reserve Bank of India (RBI) under the special power under Section 227 of the Insolvency Bankruptcy Code.
With the deadline for submitting bids for Dewan Housing Finance Corporation (DHFL) ending this weekend, Indian lenders are expecting lukewarm response to the sale of the housing finance company’s assets.

 

Since there are no takers for the entire company as a single entity, and bids are expected only for a few assets, lenders are bracing for a significant haircut on their exposure to DHFL, said a source close to the development.

 

In February, banks had offered to sell DHFL assets in three parts, including the sale of the company as a single unit.

 

Indian lenders, mutual funds, and provident fund (PF) have an exposure of Rs 88,000 crore to the company. Of this, State Bank of India has an exposure of Rs 10,000 crore.

 

“All foreign buyers have backed out of the race due to the fraud classification of accounts by the lenders and an adverse forensic report by Grant Thornton,” said a source. “Adani Group and Piramal Group might make a bid, but we have to wait till Saturday to see what their final offer is, if any,” informed a source. Piramal has evinced an interest in the retail portfolio, while Adani Group may bid for the wholesale and slum redevelopment assets. A Piramal spokesperson declined to comment.

 

In February this year, almost two dozen companies had expressed interest in DHFL, including AION Capital, Adani Capital, Hero FinCorp, KKR Credit Advisors (US) LLC, Oaktree Capital, Morgan Stanley, Goldman Sachs Group, Inc., Deutsche Bank AG, Warburg Pincus, SSG Capital Advisors, LLC, Edelweiss, Lone Star, and Blackstone.

 

DHFL was the first company to be referred to the National Company Law Tribunal (NCLT) by the Reserve Bank of India under the special power under Section 227 of the Insolvency Bankruptcy Code. DHFL currently has Rs 10,000 crore of cash in hand; this money is likely to be used to repay part of the dues of small depositors and PF investors. DHFL’s portfolios have lost significant value due to diversion of funds by its previous promoters. A forensic audit conducted by Grant Thornton showed that the previous management had used three different loan accounting software to hide fraudulent transactions worth Rs 14,500 crore. This helped the company hide the transactions from the regulators and auditors for over 10 years. The report confirmed that siphoning of funds via fictitious entities by the company had been going on since 2006-07 via 91 entities operating from a fictitious Bandra (Mumbai) branch.

 

The report, which has now been submitted to the NCLT, said there is a Rs 14,000-crore hole in the books of DHFL, which includes a Rs 9,320 crore hole in the wholesale book, Rs 1,707 crore loss in slum rehabilitation authority book, and another Rs 3,000 crore of fund diversion in the retail loan book. The recoverability of these loans is under doubt, the report said.

 

In its report for 2019-20, the auditor had said the wholesale loan portfolio aggregating Rs 49,585 crore had been valued as of March 31 at Rs 30,732 crore, with the resulting fair value loss of Rs 18,853 crore.

 

In October last year, a forensic audit initiated by Union Bank of India and conducted by KPMG had confirmed that the promoters of DHFL had diverted funds from the company and in several cases, no proper records were kept on the end-use of funds lent by DHFL to several fictitious entities.

 



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