A year after it became the first finance company to undergo insolvency proceedings, Dewan Housing Finance Corp. Ltd. (DHFL) is finally moving slowly toward closure with Piramal Enterprises being voted the winner by the creditors’ committee.
Certainly, the resolution is not set in stone since the losing bidders have the option to appeal legally. Even retail fixed deposit holders can seek the court’s help if they are not satisfied with the implementation plan.
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That said, for all intents and purposes, Ajay Piramal’s company will end up swallowing DHFL. Media reports said Piramal had offered ₹37,300 crore for DHFL, which includes an advance cash payment of ₹12,700 crore, ₹Rs 3000 crore as interest income payable on DHFL operations and the issuance of around ₹20 billion rupees of long-term bonds to banks.
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Analysts said that the DHFL acquisition would be positive for Piramal Enterprises despite the short-term requirement for a large capital injection. The company has been trying to diversify its loan portfolio and the incorporation of DHFL would bring the share of retail loans to 35%. With both real estate sales and the initial trend in home loans encouraging, Piramal can get more out of your DHFL investment. Additionally, DHFL also brings with it a strong workforce and a network of 250 branches. It also brings with it an existing technology platform. All of this can make it easier for Piramal Enterprises to turn DHFL into a profitable business. As such, DHFL’s quarterly net loss had been reduced in the December quarter.
But there are a few red flags, which are enough to give Ajay Piramal a mild case of buyer’s remorse. For starters, the Piramal Enterprises loan book is about ₹52,000 crore in September. This compares to DHFL ₹95 billion rupees, of which 46% is wholesale. Clearly, Piramal is swallowing a book larger than its own size. Managing the combined book will not be easy. The wholesale portfolio is likely to be in trouble considering the high level of delinquencies and ongoing stress among real estate developers.
Two, it will be a challenge to meet the demands of creditors. In this case, banks are likely expecting to be compensated for the impact of fraudulent transactions at DHFL. Piramal Enterprises will have to act carefully on these fronts. Recall that a Grant Thornton forensic report in early 2020 found many financial doubts. However, analysts note that Piramal Enterprises’ bid for DHFL is nearly 60% smaller than the distressed lender’s balance sheet size. This gap can fix any new misgivings about the book.
Piramal Enterprises’ stock has gained 21% since the company increased its bid for DHFL in mid-December, showing that expectations are quite high and that there is little room for error when it comes to the integration process of the company. fusion.
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