Piramal Group’s acquisition of the beleaguered Dewan Housing Finance Corporation Ltd (DHFL) marks the end of a long bidding battle for the mortgage lender.
It is also a turning point in the history of the Insolvency and Bankruptcy Code (IBC) process, since it’s the first resolution of a financial services firm.
On September 29, the Piramal Group announced the payment of consideration for DHFL’s lenders. With this, the creditors of DHFL finally got the good news they were waiting for a long time.
“Pirmal was largely into wholesale lending but they had been trying to scale up in retail, but so far had not been big enough to compete. With resolutions done and now market ripe for mortgages, it can bounce back on business,” Sidhharth Purohit, analyst at SMC Global Securities.
The good news
The creditors of DHFL, including fixed deposit holders, would recover an aggregate amount of around Rs 38,000 crore from the resolution process of DHFL.
This would include Rs 34,250 crore to be paid by Piramal Capital and Housing Finance Ltd (PCHFL) as a combination of cash and non-convertible debentures (NCDs), and around Rs 3,800 crore, which is the entitlement of creditors (as per the resolution plan), from the cash balance available with DHFL.
Now, PCHFL will merge with DHFL. The merged entity will be 100 per cent owned by Piramal Enterprises Ltd.
According to the Piramals, there were around 70,000 creditors and most of them would recover nearly 46 per cent dues.
The total consideration of Rs 34,250 crore includes an upfront cash component of Rs 14,700 crore and issuance of debt instruments of Rs 19,550 crore (10-year NCDs at 6.75 per cent per annum on a half-yearly basis).
A tough bidding war
From the time DHFL’s case was admitted by the National Company Law Tribunal (NCLT), there were multiple suitors for DHFL, which was at one point a formidable player in the housing loan market under the leadership of the Wadhawans. DHFL collapsed due to the severe liquidity crunch.
The contenders included Oaktree Capital and Adani Group, which was in the race till the last round.
The Piramals, however, was ahead in the battle at all points. That’s because the group offered a higher upfront cash and also had the benefit of being a local corporate group, which added comfort to the lenders.
Moneycontrol first reported about the Piramals enjoying an edge over Oaktree in the bidding war.
In January 2021, 94 percent creditors voted in favour of Piramal’s resolution plan. Subsequently, approvals were obtained from the Reserve Bank of India (RBI), Competition Commission of India (CCI) and NCLT for the completion of this transaction.
End of the road for Wadhawans?
The war for DHFL’s ownership wasn’t just among the suitors. DHFL’s former promoter, Kapil Wadhawan, too, joined the fray with counter-offers. It is also, perhaps, the end of road for Wadhawan in his bid to get back control of the firm.
In multiple letters to the DHFL administrator and lenders, he complained about the lack of access to DHFL’s records and sought permission to participate in the Committee of Creditors (CoC) meetings.
“I am presently handicapped as I have no access to the records of the company to ascertain the present position and I’m constrained to rely on newspaper reports as well as my knowledge and experience of having run the business for more than 15 years,” Wadhawan said in one of the letters.
If given access to the records, he can make a proposal, setting out the necessary upfront and deferred payment components, which will provide maximum value realisation for all stakeholders, Wadhawan had said.
Wadhawan knocked on the doors of the DHFL administrator multiple times and continued to talk to the impatient lenders. But, none took the offers seriously.
DHFL had total assets worth Rs 79,800 crore, as of March 2020, as per its annual report. Of these, assets worth Rs 50,227 crore, forming 63 percent of the total portfolio, were reported as non-performing assets (Gross NPAs).
Of this, its retail book stood at Rs 33,500 crore, with gross NPAs of Rs 7,147 crore, accounting for 21.32 percent of the total portfolio.
The wholesale book, including SRA loans, stood at Rs 42,860 crore, of which a whopping Rs 39,690 crore, or 92.61 percent of the entire portfolio, is categorised as gross NPAs.
A new life for DHFL
Post the Piramal buy, the combined entity will have 301 branches, 2,338 employees and over 10 lakh customers. “We will be a dominant player in the fast- growing affordable housing segment,” said Anand Piramal, Executive Director of Piramal Group, in a statement on Wednesday.
“Over the last two years, we have successfully built our next-gen technology platform, advanced analytics engine and AI/ML capabilities. This acquisition allows us to implement these technologies across a much larger base of customers. The merged entity is poised to be at the forefront of the digital-first retail lending market in India,” Piramal said.
Over the last two years, Piramal Enterprises strengthened its balance sheet by raising around Rs 18,000 crore of equity. It reduced the net debt-to-equity and shifted towards long-term borrowings, thereby creating a headroom for significant growth in the merged entity.
“The acquisition is a major step under the execution of a strategic roadmap to transform our financial services business. This transaction will not only grow the retail loan book to around five times, but also lead to a significant diversification of the overall loan book,” the group said in a statement.