Piramal Enterprises on September 29 announced the acquisition Dewan Housing Finance Corporation Ltd. (DHFL) by paying the latter's creditors Rs 38,000 crore.
The acquisition includes Rs 34,250 crore to be paid by Piramal Capital and Housing Finance (PCHFL) in cash and non-convertible debentures and Rs 3,800 crore, which is an entitlement to the creditors from the resolution plan, from the cash balance of DHFL.
There will be an upfront cash component of Rs 14,700 crore plus issuance of debt instruments of Rs 19,550 crore in form of 10-year non-convertible debentures at 6.75 percent.
Ajay Piramal, Chairman, Piramal Group in a media call said they will be focusing on affordable housing loans in tier-2 and tier-3 cities and continue to increase its presence.
As banks are not much present in these places, he said, "the rates are not competitive in these cities and we will use technology to ensure we are competitive. With the spread as far as distribution is concerned, technology for understanding quality of credit, it will give customers a good experience."
On the quality of the portfolio, Ajay Piramal added, the majority of people we are lending to are non-salaried people and that is one of the strengths we have and our ensuring we do well in that. The merged entity will look at lending in affordable housing and around an average ticket size of Rs 10,00,000.
They will primarily focus on increasing their lending book and as far as the mix is concerned, it will be 50:50 retail and wholesale.
In long term as far as wholesale is concerned, "we will be lending to mid-size corporates and as far as retail is concerned we are going in small ticket loans against property, car financing, and will keep technology at the centre of what we are doing," Piramal added.
He further added, "As far as the wholesale portfolio of DHFL, we at Piramal have a good wholesale portfolio of real estate loans and over a period of time we will see how we can bring it down as far as DHFL is concerned and build more on retail."
DHFL has a life insurance subsidiary in a joint venture with America-based Pramerica. "We are seeing what we will do with the life insurance business, we are still evaluating the future of that business. At the moment we do not have plans to exit," he said.
On how the collections have been faring, he said they have found collections of both entities have been quite good and not affected by the second wave. Housing loan is one where people don't want to default, the collections from DHFL have been good in the second wave, he said.
On whether they will evaluate co-lending tie-up with banks, Piramal said, co-lending happens when NBFCs lack on either distribution of funding requirements. As far as we are concerned, we are comfortable on both funding and distribution, he said.
Our debt-equity is also 3.5 and we do have enough funds to lend and don't need to co-lend with banks. Our distribution is also with 300 branches and 2,500 people as fleet on the street, he added.
The Reserve Bank of India had cancelled the fixed deposit acceptance license of DHFL. At an appropriate time, we will apply for the license and we would like to have it, he said.Creation of HFC
Piramal Capital and Housing Finance Ltd. (PCHFL) will be merged with DHFL and the resultant entity to be named PCHFL.
The acquisition gives Piramal Capital access to over one million and presence across 24 states with a network of 301 branches and 2,338 employees.
Piramal said the acquisition will scale up its retail loan book to five times and reduces the average borrowing cost and improves the asset-liability profile of its financial services business.
Committee of Creditors on January 15 had voted in favour of Piramal Group. Oaktree, an American asset management company & Adani Capital were in the race too.
Piramal Capital had placed a bid of Rs 37,250 crore for DHFL as against Oaktree’s bid for DHFL at Rs 38,400 crore. Piramal’s offer had a higher upfront cash payment.
Piramal’s acquisition of DHFL fetches a 43 percent recovery for DHFL’s lenders. The collapsed DHFL owed Rs 91,0000 crore to its lenders with SBI having the highest exposure around Rs 10,000 crore. Other lenders include Bank of India, Canara Bank, NHB, Union Bank of India, and Bank of Baroda.
DHFL had collapsed in 2018 when it defaulted on its dues with a severe liquidity crunch after Infrastructure Leasing & Financial Services (IL&FS) went bust in late 2018.
Enforcement authorities launched against the DHFL promoters Kapil and Dheeraj Wadhawan revealed several charges of financial irregularities and alleged ties with the underworld.
DHFL case was taken up in the National Company Law Tribunal (NCLT) in December 2019 and since then creditors have been attempting to recover their dues.