DHFL Pramerica Fund has the Highest Exposure to DHFL

Moneylife Digital Team 31 January 2019

Investor Interest

In a clear case of conflict of interest and example of poor governance, DHFL Pramerica Ultra Short-Term seems to have the highest investment exposure to the controversial Dewan Housing Finance Corporation (DHFL), a non-banking finance company (NBFC) engaged in providing home loans and mortgages.

DHFL Pramerica was the joint venture of DHFL and Pramerica Asset Managers, when these investments were made. Pramerica bought over DHFL’s stake in December. If the DHFL group is found to be in dire financial straits then MFs entire exposure to such debt would be at risk as well.

Financial market players are estimating that a huge potential loss after the fiasco of Infrastructure Leasing & Financial Services might be from DHFL. The company lost more than 73% of its share price in the past four months, ever since uncertainties emerged in the NBFC space that froze credit-lending operations of the company.

Also, Cobrapost, an investigative media alleged DHFL’s promoters of funnelling Rs31,000 crore of bank loans into their own shell companies, mostly without any security and often in one shot.

The growth of financial companies has been supported by mutual funds. They held around Rs8,651 crore worth of debt of DHFL’s and four of its subsidiary and associate companies, as per portfolio data of 31 December 2018, with DHFL Pramerica leading the list by far.

exposure as per portfolio data of 31 December 2018; source – Mutual Funds India

The schemes that have the highest exposure as a percentage of its total assets are given below-

exposure as per portfolio data of 31 December 2018; source – Mutual Funds India

DHFL is trying to manage its Rs100,000 loans and assets through short-term measures like selling off its loan book assets, non-core businesses and securitisation. But these efforts are nothing compared to the crisis of confidence that has gripped DHFL lenders. Today there is even talk of a government probe into the firm DHFL stocks end 16% lower; company denies MCA probe.

The role of rating agencies and fund companies in keeping afloat shaky financial firms IL&FS and DHFL lead to some investigation by the market regulator, Securities and Exchange Board of India.

Debt schemes of mutual funds lend directly to the borrower (s), but with the help of a fund manager that executes the transaction and diversifies some of the risks involved. If a borrower defaults, the loss is entirely borne by the unit holders.

While this is part of the normal business risk, mutual funds have been over adventurous in funding the personal finance companies of the promoters too without any collateral Mutual Funds Have Also Lent to DHFL Promoters' Holding Company Just Like Yes Bank’s Rana Kapoor.

Comments

User

tapan sur

6 years ago

We have climbed the ladder in ease of doing business, as there is so much profit on the sly, now the whole world wants to do business in our country so that they can take the money and flee easily.

nagaraju lanka

6 years ago

Why Sterlite technology shares are dropping every day.Shall we buy the stock at this point

AAR

6 years ago

DHFL has been issuing FDs for quite sometime. Are they honouring the interest and maturity?

Ajay Sharma

Replied to AAR comment 6 years ago

Yes, no defaults of any kind so far.

Ramesh Poapt

6 years ago

Moneylife to pl take up the matter with crisil for AAA rating.