Piramal Enterprises Limited on Wednesday announced that it has completed the payment for the acquisition of Dewan Housing Finance Corporation Ltd (DHFL), marking the first successful resolution under the Insolvency and Bankruptcy Code (IBC) route in the financial services sector. Piramal group said that the company has discharged the consideration to the creditors of DHFL. In a statement, the group claimed that most of the DHFL creditors are recovering nearly 46% via the resolution plan.
Piramal Capital and Housing Finance Ltd. (PCHFL) will be merged with DHFL and the resultant entity will be named PCHFL which will be 100% owned by Piramal Enterprises Ltd. The process is likely to be completed in the next two weeks.
The acquisition is expected to offer Piramal Capital access to over one million customers and presence across 24 states with a network of 301 branches and 2,338 employees.
“The acquisition is expected to lead to a reduction in weighted average borrowing cost by nearly ~130 basis points and should further improve the Asset Liability Management (ALM) profile of our financial services business,” the group said in a statement.
The acquisition involves Rs34,250 crore to be paid by Piramal Capital and Housing Finance (PCHFL) in cash and non-convertible debentures (NCDs) and Rs3,800 crore, which is the entitlement of creditors (as per the approved resolution plan), from the cash balance of DHFL.
There will be an upfront cash component of Rs14,700 crore plus issuance of debt instruments of Rs19,550 crore in the form of 10-year NCDs at 6.75%.
Addressing a virtual press conference earlier today, Ajay Piramal, chairman, Piramal group said they will be focusing on affordable housing loans in tier-2 and tier-3 cities and will continue to increase their presence.
Since banks have limited presence in these places, Mr Piramal 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."
The merged entity is primarily expected to focus on increasing their lending book and as far as the mix is concerned, it will be 50:50 retail and wholesale.
In the 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," Mr Piramal added.
With respect to the wholesale portfolio of DHFL, Mr Piramal said "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."
When asked about DHFL’s life insurance subsidiary (a joint venture with US based Pramerica), Mr Piramal said "We are seeing what we can 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.”
When asked if they will opt for co-lending tie-up with banks, Mr Piramal responded that co-lending happens when the non banking finance company (NBFC) is short on either distribution or lacks funds. He maintained that they are comfortable on both funding and distribution and hence they are not looking at co-lending.
”Our debt-equity ratio 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.
When asked how well the collections are faring, given the COVID factor, Mr Piramal claimed that they have found collections of both entities (DHFL and PCHFL) 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 during the second wave. Whatever stress will be there, will be in the unsecured loans, he said.
The Reserve Bank of India (RBI) had earlier revoked the fixed deposit acceptance licence of DHFL
and reclassified it as a non-deposit taking housing finance company (HFC), before approving the Piramal group's bid to take over DHFL towards the end of the resolution process. PCHFL is a non-deposit taking NBFC; but, during the media interaction, Mr Piramal disclosed that “At an appropriate time, we will apply for the deposit taking license and we would like to have it.”
When asked whether at any point of time, he felt that the deal was slipping away, Mr Piramal shared he had “a quiet sense of confidence” about the deal while admitting that it took a long time (over 15 months) and was arduous with five rounds of bidding. He revealed that they used a lot of AI (artificial intelligence) and ML (machine learning) as a part of the due diligence process but they knew deep down that it (DHFL) is a quality asset. “In M&A, you do go through ups and downs and it was the case here as well. But I think we knew from day one that we would get it,” he added.
“In value terms, the transaction is among the largest resolutions till date, setting the precedent for future resolutions in the sector,” Mr Piramal mentioned while expressing his satisfaction for the successful transaction, during the media call.
During the Q&A session, following the presentation, when a couple of fixed deposit-holders and NCD investors (it is understood that retail investors have not yet received their repayment proceeds) tried to ask him questions, he refused to answer them and said that this session is limited to the media interaction only. He said they would hold a separate call to respond to the questions raised by retail investors of DHFL FDs and NCDs.