“We understand that the RBI has approved the DHFL resolution plan from Piramal Capital and Housing Finance, submitted by the CoC,” Piramal said. Lenders will now approach the National Company Law Tribunal (NCLT) for its approval before the merger process begins.
Piramal Capital and Housing Finance is the non banking finance company (NBFC) controlled by the pharma to real estate group.
A quick approval from the RBI is likely a precursor for a NCLT approval even as the resolution plan, the first for a NBFC, was officially administered by the central bank. “The central bank had a timeline of 45 days to approve it, but it took just about three weeks reflecting a fast-paced process,” one person aware of the deal.
The approval suggests that Piramals have qualified for the central bank’s “fit and proper” criteria to own the housing finance company.
Billionaire Ajay Piramal’s bid for DHFL was approved by lenders a month ago with 94% votes trumping offers by Oaktree Capital and Adani Capital.
In absolute terms Oaktree’s Rs 37,850 crore offer for creditors, was higher than Piramal’s Rs 36,250 crore recovery. However, lenders preferred Piramal because of its Indian domicle, deep pockets, higher upfront payment and the fact that the DHFL business will benefit from being merged into an already existing business.
According to an investor presentation on Piramal’s website the acquisition will help the company “to diversify the loan book and increase its granularity…and is another step towards demerger of financial services and pharma business in the future.”
At the end of December Piramal’s loan book was at Rs 46,370 crore but a majority of loans at Rs 41,060 crore were wholesale loans 70% of which were to the risky real estate sector.
Last fiscal Piramal has introduced new retail lending porducts even as it has reduced its wholesale book from Rs 51,436 crore in March 2019. The company will now move its retail loans to the more granualar affordable housing, secured business loans and digital personal loans, it said.
The addition of DHFL’s loan book will accelerate Piramal’s march towards retailisation and catapault it in the top five among home finance companies in India. DHFL had a total loan book of Rs 62,600 crore as of March 2020, about half of which were loans to individuals to buy homes. It is unclear as to what is the current loan book of the DHFL. Results released by the administrator earlier this month showed that DHFL swung to a loss of Rs 13,095 crores in the quarter ended December 2020 from a profit of Rs 934 crore a year earlier as net losses of fair value charges rose.
However, the total amount of non performing assets (NPAs) is unknown, though it is estimated to be in double digits. Piramal meanwhile has a gross NPA of 3.70% as of December.
“It remains to be seen how Piramal manages to abosorb DHFL’s losses and liabilities which have only increased in the last two years. They will need to hike provisions and step up recovery to make money from this asset,” said an analyst who tracks the companies.
Lenders chose Piramal after weeks of a tough tussle with points and counterpoints by both bidders on how creditors should treat their bids as they differed on qualitative and quantitative parameters. Both said their bids were superior to the other.
However, it will give Piramal access to DHFL’s branches which are estimated to be around 300 currently down 570 at peak. Nevertheless these branches will strengthen Piramal’s reach to grow its less risky retail portfolio and bring it a step closer in becoming a financial services conglomerate.
Piramal has been vocal about his ambition to build a financial services business to tap the growing Indian market which still has a large chunk of people still outside the formal financial system.
DHFL had borrowed about Rs 91,000 crore from banks, bondholders, depositors, institutions.
The RBI had put DHFL under administrator after charges of siphoning off funds and corruption were filed against the promoter family including the chairman Kapil Wadhawan. The Enforcement Directorate and other central agencies are pursuing prosecution against the former management.