The race for bankruptcy salvation of a fraud-hit financial firm has finally come to an end, but the conclusion has not been good for all creditors.
As with most buyouts, Piramal Enterprises Ltd’s acquisition of Dewan Housing Finance Corp Ltd (DHFL) also has its winners and losers.
DHFL will be merged with Piramal Capital and Housing Finance Limited (PCHFL), a wholly owned subsidiary of Piramal Enterprises.
Post the merger, which is expected to be completed in two weeks, PCHFL’s retail loan book will grow five times, Piramal Enterprises management said in a media call on Wednesday.
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PCHFL is targeting a retail-to-wholesale credit mix of 70:30 in the medium term. Indeed, given the pressure on the company’s balance sheet from its large exposure to real estate developers, the acquisition of DHFL comes as a boon. With the merger, Piramal will get one million retail customers and 301 branches, with the potential to grow the retail business rapidly.
“We will be a key player in the fast growing affordable housing segment,” said Anand Piramal, Executive Director, Piramal Group in a press release.
Indeed, Piramal’s readiness to acquire a housing finance company with mostly secured retail assets at huge discounts. The company will pay the total ₹38,060 crore, which is 44% of the total claims ₹87,000 crore by the creditors.
What’s more, the cash upfront expense for Piramal is justified ₹14,700 crores. out of this, ₹3,850 crore will be from DHFL’s balance sheet, while the balance payment will be through issuance of 10-year bonds. ₹19,550 crores.
The result is that Piramal has managed to squeeze a fair price discount and an attractive structure in the purchase of troubled DHFL.
Piramal’s journey from pharmaceutical to finance will now accelerate. As such, the revenue share of the finance business has grown to 55% of the company’s total revenue in FY21 from 33% in FY16.
On the other hand, creditors will have to take a haircut of 54%. DHFL’s lenders are set to receive their cheques soon, giving them 46% of their claims. However, the depositors of the company will suffer the most as they get back only 23% of their money.
DHFL was placed under insolvency proceedings in November 2019. Since then, the creditors of the housing finance company have faced a rough ride towards resolution.
By 2020, a lengthy bidding process began. There was a bidding war going on between Piramal, Oaktree Capital and Adani Group. In the end, Piramal emerged as a clear winner.
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