Piramal group gets RBI approval for debt-ridden DHFL's acquisition

Topics DHFL | RBI | NCLT

Piramal to merge DHFL as soon as NCLT clears plan
The Reserve Bank of India (RBI) on Thursday cleared the Rs 34,250-crore acquisition of Dewan Housing Finance Corporation (DHFL) by the Piramal group.

The Ajay Piramal-led group had outbid US-based asset management firm Oaktree last month. Piramal plans to merge DHFL with its financial services business as soon as the National Company Law Tribunal (NCLT) approves the transaction.

“We understand that the RBI has approved the DHFL resolution plan from Piramal Capital and Housing Finance, submitted by the CoC (committee of creditors),’’ the company said in a statement. 

On January 15, the lenders to DHFL voted in favour of Piramal’s debt resolution plan for DHFL, paving the way for the turnaround of the bankrupt housing finance company. Piramal had offered upfront cash of Rs 14,700 crore, including cash on DHFL’s balance sheet, and a deferred component (non-convertible debentures) of Rs 19,550 crore. 

The acquisition is in line with the Piramal group’s strategy to diversify its loan book, and a step towards the demerger of the group’s financial services and pharma businesses in future. A Piramal group official said the company planned to merge its financial services business with DHFL and retain all employees; it could even hire additional staff to grow the business.

DHFL was sent to the NCLT in November 2019 after the company defaulted on its debt worth Rs 90,000 crore and auditors found a Rs 15,000-crore hole in its books. The promoters of the company are currently in jail and facing money-laundering charges.

The higher upfront cash tilted the scales in Piramal's favour and was scored higher by the CoC. According to Piramal’s plan, the existing shareholders of DHFL will get zero value. The fixed deposit holders have not voted for both plans.

After the RBI clearance, the CoC will now submit the plan for approval of the NCLT. Piramal Capital and Housing Finance’s merger with DHFL will be effective from the date the NCLT approves the plan, thus adding 4,500 employees to the group and investing Rs 10,000 crore of Piramal Capital’s equity in the merged entity.

For Piramal, the merger with DHFL makes sense as it would give it a stable cash flow from retail customers at a time when its own corporate loan portfolio is under stress due to a slowdown in the real estate sector. For the nine months ended December 2020, Piramal’s financial services business had a total book size of Rs 46,370 crore.

DHFL shares, locked in 5 per cent upper circuit for the past few days, closed at Rs 18.05 apiece on Thursday.

Dear Reader,

Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.

We, however, have a request.

As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.

Support quality journalism and subscribe to Business Standard.

Digital Editor

Business Standard is now on Telegram.
For insightful reports and views on business, markets, politics and other issues, subscribe to our official Telegram channel