DHFL Resolution: Piramals Profit Plentifully, Pittance for the Rest!
In the past few days, many media reports have celebrated the completion Deewan Housing Finance Ltd (DHFL) acquisition by the Piramal group under the bankruptcy process. DHFL was one of the most infamous candidates coming up for resolution under the Indian Bankruptcy Code (IBC), with the promoter suspected to have siphoned out an astronomical sum, perhaps the biggest loot in the corporate India.
DHFL also marked the first instance of a finance company being referred to the IBC process. At over Rs40,000 crore, the case had the highest ever public exposure to the company’s liabilities, because it enjoyed a high, AAA credit rating almost until the collapse.
To contextualise the case with some numbers, an abstract of the company’s financials for the year ended March 2019 and March 2021 is given below. March 2019 was the period immediately after the Cobrapost exposé about the fraud. March 2021 is the latest year and the resolution has happened within a few months of this period.
The figures in the table are aggregated and approximate for the convenience of discussion and not an accurate representation of the financial details as per the annual report.
The media euphoria is about the banks as well as bond- and deposit-holders receiving a tidy sum of cash as settlement. But the fact is that a significant part of the settlement, amounting to Rs19,550 crore, is by way of 6.75% coupon debentures payable half-yearly. The debentures are redeemable over a 10-year period in a phased manner. The cash settlement, according to news reports, is only the balance sum, which conveniently uses about Rs3,500 crore already in DHFL.
The hair-cut or loss to creditors is based on the gross settlement figure of Rs37,250 crore. This is a mistake, since Rs19,550 crore, represented by a 6.75% instrument cannot be valued at 100% of the face value. For an AA rated company, which Piramal Housing Finance Ltd is, the market would never have subscribed to a 6.75% coupon of 10-year instrument that too for an issue size of Rs 19,550 crore. There is a clear loss in value in this, beyond the obvious haircut taken by lenders on the basic principal.
There has also been significant loss to fixed deposit (FD) and debenture-holders in terms of loss of interest for over two years. All this is not factored in the calculation of the haircut.
What is the true cost of acquisition to the Piramal group? Press reports suggest that they have hardly put any cash on the table. They have raised Rs19,550 crore through new financial paper. About Rs3,500 crore is out of the cash available in DHFL. Loans from Barclays Bank and Standard Chartered appear to have supplied funds for the cash payment. In effect, one bank substitutes the loans extended by another, and that too after a huge haircut.
The loan book has been depreciated as depicted in the table. Even assuming that 80% of the loss is allowed in tax books, the cash benefit may be approximately 28% of say Rs50,000 crore – that works out to a huge Rs14,000 crore!
The Piramals have got themselves a sweet deal from the committee of creditors (CoC) in being allowed to issue bonds at a coupon of 6.75% for a 10-year period. This itself is a saving of 3%-3.5% on the coupon for a comparable issue to raise Rs19,550 crore. The benefit over the tenure of the loan would be around Rs2000 crore on a rough discounted basis. Effectively, about Rs16,000 crore is the bounty based on the nature of acquisition and the manner in which the settlement has been worked out.
The previous promoter had raised the issue that the recoverability of the loan book has been grossly underestimated. Perhaps the man who was the cause of the drain is most likely to know the truth! A few more surprises on the positive side must be in the offing for the acquirer, but nothing will be shared with investors who have lost heavily by trusting ratings. In sum, and inept CoC has ensured a one-sided deal giving big gains to the Piramals while doing a great disservice to small investors like the bond-holders who got the rough end of the stick.
In a carefully orchestrated narrative, the DHFL resolution may be celebrated as a conclusion of a high value IBC case, but the Piramals are the the only winners, at the end of the day!
(Ranganathan V is a CA and CS. He has over 43 years’ experience in the corporate sector and consultancy. For 17 years, he worked as Director and Partner in Ernst & Young LLP and three years as senior advisor post-retirement handling the task of building the Chennai and Hyderabad practice of E&Y in tax and regulatory space. Currently, he serves as an independent director on the board of four companies.) 
2 years ago
Where has my comment gone? It seems to have disappeared - just like my money from PMC Bank.
2 years ago
Wadhwan have own assets of more than Rs 45 thousands crore please sale his assets or settle the all amount of FIXED DEPOSITOR. Please remind government and RBI and NCLT and COC of DHFL. All innocent citizens have deposited their life time savings in DHFL as it was a AAA company now they havev lost every thing. Government should intervene for refunding their atleast principle and interest money.
2 years ago
RIL & Piramals know how to manage the resolution process in case under IBC code.They are being favored in such every deal.Reliance petroleum got merged while share of RP was brought down to around rs 20/ from around Rs.70.Anil Ambani companies will be purvhased by RIL at throw away priice.
3 years ago
This is a cognizable offense. Govt should intervene and provide justice to citizens ????????
3 years ago
The rating agencies which gave AAA, stable rating to DHFL NCDs should be penalized, take pending money from them. Shame on them.
Replied to Hhjjjhh comment 3 years ago
Shamelessness and complete lack of morals /ethics helps them to easily commit these heinous frauds. Also they're empowered because of tacit Govt/ RBI backing. Our so called monitoring / investigative agencies are powerless /lack courage to carry out their basic duties, and therefore tamely fall in line. The Judiciary has also distanced itself from throwing its might behind the innocent, vulnerable defrauded citizens. The Media, except for a handful of publications, don't want to upset their apple cart and prefer to chase trivial sensational gossip stories. It's the perfect recipe and scenario for criminals to thrive.
Replied to bala.mathur comment 3 years ago
Absolutely true. ????
3 years ago
We just read and reply something nothing doing else.
At their point of view, we are just barking and barking after some days our barking atomatically will stop
3 years ago
This is an outright fraud in collusion with all Govt agencies such as RBI, SEBI,rating agency and above all ministry of finance, GOI. Rbi and sebi allowed the company to collect funds through debentures and fixed deposits. Many senior citizens parked their life time savings in DHFL as it was a AAA company. Lost every thing. Now let us see if judiciary takes a different view or go according to swindling govt agencies
Concerned Indian
3 years ago
Piramal Housing Finance Ltd's parent company is Piramal Enterprises. The owner is Mr. Ajay Piramal, whose son Anand is married to Isha Ambani. Connect the dots yourself.
3 years ago
Co should think & return our principal+ intrest for 2 years. Govt when know the truth about one sided favourable decision should get it settled . They raised further money from market.
Replied to narindergogna4 comment 3 years ago
True. The interest part MUST be given to the hapless investors. Returning just the Principal after two years is not ethical.
3 years ago
Yes this is the fact that coc had influenced by piramal & favoured the new owner who has eaten away small investors/ senior citizens/ retired people money. He has become rich from poor people money . & Earlier owner of dhfl should settle small investors money ( FD holders ) in perticular who lost their full life earnings. This is mercy less attitude of new & old / coc .
3 years ago
Small investors were about to receive a full payout.... But I didn't receive it...
3 years ago
All senior citizens should complain to central govt grievence cell for full remittence for secured ncd as it is a big loss for them Many manuplated account by transfering debentures in july to their near and dear ones Many who purchased debentures from market even in last months made huge chunk While investors from long period who tried to remain honest by maintaing portfolio same as bought ie above 2 lacs suffered I understand all senior citizens below 10 lac portfolio who are holding portfolio atleast since one year or more should be paid full regards Kiran Desai
3 years ago
It is a horror story or an action-packed bollywood movie. Crony religious extremist ruling party is appropriating everything. On the one hand, they are allegedly terror-funded by the gangsters, Dawood-Mirchi & RKW-DHFL, on the other hand, they have connection with allegedly CIA-sponsored Vaisnava religious corporate-guru, who is, in turn, found to be the preceptor of Mr. Ajay Piramal. The RBI appointed CoC is just a puppet for manipulating the audit of an ongoing concern. The #DHFL_Victims are bogged down or rather sandwiched by such tremendous forces. Their human right is totally infringed because of financial abuse in the context of plutocratic regime.
3 years ago
We don't want any clarification , haircut bla bla bla.... But give us some justice . We have faith upon our constitution and judiciary system till now , but we didn't get any solution. Plz consider about all Indian citizen who have invested their whole life savings in DHFL for better life, but get bitter although.....
3 years ago
It seems entire economic & Judicial machinery is collapsed as NONE have come to support, rescue & protect innocent, poor (majority senior citizens) DHFL FD HOLDERS whose hard earned money has been LOOTED MERCILESSLY by business tycoons with DIRECT & INDIRECT involvement & support of rulling party. We don't oppose anyone making profitable business but it should not be at the cost of we poor innocent people's old age money by snatching away/forfeiture. DHFL story is being repeated very frequently and number of INSOLVENCY is increased to manyfolds as compared to previous government. Government has made LOOTING very SIMPLE.
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