A fraud-hit financial firm’s sprint for insolvency salvation has finally ended, but the conclusion has not been good for all creditors.
As is the case with most buyouts, Piramal Enterprises Ltd’s acquisition of Dewan Housing Finance Corp. Ltd (DHFL), too, has its winners and losers.
DHFL will be merged with Piramal Capital and Housing Finance Ltd (PCHFL), a wholly owned subsidiary of Piramal Enterprises.
After the merger, which is expected to be completed in two weeks, PCHFL’s retail loan book will grow by five times, the Piramal Enterprises management said in a media call on Wednesday.
PCHFL is targeting a retail-to-wholesale loan mix of 70:30 in the medium term. Indeed, given the stress on the company’s balance sheet from its large exposure to real estate developers, DHFL’s acquisition comes as a boon. The merger will give Piramal 1 million retail customers and 301 branches with a potential to grow the retail business fast.
“We will be a dominant player in the fast-growing affordable housing segment,” Anand Piramal, executive director, Piramal Group, said in a press release.
Indeed, acquiring a housing finance company with mostly safe retail assets at a big discount shows Piramal’s alacrity. The company will pay a total of ₹38,060 crore, which is 44% of the total claims of ₹87,000 crore by creditors.
What’s more, the upfront cash outgo for Piramal is just ₹14,700 crore. Out of this, ₹3,850 crore will be from the balance sheet of DHFL, while the remaining payment is through the issuance of 10-year bonds worth ₹19,550 crore.
The upshot is that Piramal managed to squeeze out a reasonable price discount and an enviable structure in its purchase of troubled DHFL.
Piramal’s journey from pharmaceuticals to finance will be fast-tracked now. As such, the revenue share of the finance business has increased 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%. Lenders to DHFL are set to get their cheques soon, giving them 46% of their claims. The company’s depositors, however, will suffer the most as they get back only 23% of their money.
DHFL was put under insolvency proceedings in November 2019. Since then, the creditors of the housing finance company have had a tumultuous ride towards resolution.
Through 2020, a prolonged bidding process ensued. The bidding war was among Piramal, Oaktree Capital and the Adani Group. At the end, Piramal emerged as a clear winner.
Never miss a story! Stay connected and informed with Mint.
our App Now!!