DHFL acquisition to see Piramal Enterprises sharpen its retail focus

Completes acquisition; pays Rs 34,250 cr to creditors

Piramal Enterprises on Wednesday announced it has completed the acquisition of Dewan Housing Finance Corporation (DHFL) by paying a consideration of Rs 34,250 crore. The acquisition marks the first successful resolution of a financial services company under the Insolvency and Bankruptcy Code. 

This transaction will result in a 5x increase in Piramal’s retail book. It will also help it to achieve a lending book equally divided between retail and wholesale in the medium term, from a largely wholesale book. In the long term, the lending book will be focused on the retail side, with 67:33 retail to wholesale mix. 

“Our retail assets under management will increase 5x. The lending book will be 50:50 between retail and wholesale. The plan is to reduce the wholesale book in the future from the DHFL side. The long-term plan is to have retail at two-thirds of the lending book,” said Ajay Piramal, chairman, Piramal Group. 

On the retail side, it will also look at offering used cars and two-wheeler loans, education loans for vocational and online courses, small builder finance to meet construction finance requirements, unsecured business loans, personal loans, and loans against securities. 

As far as the wholesale book is concerned, he said it will lend to mid-sized corporations. When it comes to DHFL’s wholesale book, he said “...we will see how we can bring it down and build more on retail”. 

With the completion of the acquisition, Piramal Capital & Housing Finance will be merged with DHFL in the weeks to come. The merged entity will focus on affordable housing with a smaller ticket size. “The merger will happen in the next two weeks. It will serve the market in tier I-III cities,” he said. 

 With fewer banks in tier II/III cities, the rates are not as competitive. "We will use technology to evaluate the quality of credit. We are mostly lending to the non-salaried. We will strengthen our system further," he added. 

There will be significant improvement in the number of branches, as well as geographical locations Piramal has footprint in after the acquisition. From 10 states and 40 cities, the presence of the merged entity will increase to 24 states and 236 cities and towns. The customer base will increase to nearly 1 million, making it one of the most dominant players in the affordable housing market.

The merged entity will have a book size of around Rs 60,000-65,000 crore, with 301 branches and 2,338 employees.

“The plan is to take the branches to 1,000 and hire more,” said Ajay Piramal. He also said they are not envisaging any change in the senior management of DHFL. The focus will be to work together for a successful integration.

He said a deposit-taking licence would be applied for at an opportune time since they want to have the ability to accept fixed deposits. Also, currently, they don't have any plans to exit the life insurance business since they are still evaluating the future of that business. 

The total consideration paid by Piramal Group for acquiring DHFL in the corporate insolvency resolution process is Rs 34,250 crore, which includes an upfront cash component of Rs 14,700 crore and issuance of debt instruments of Rs 19,550 crore (10-year non-convertible debentures at 6.75 per cent per annum on a half-yearly basis).

In a statement to the exchanges, Piramal Enterprises said the creditors of DHFL will recover an aggregate amount of Rs 38,000 crore from DHFL’s resolution, which includes Rs 34,250 crore paid by Piramal Enterprises and Rs 3,800 crore from the cash balance of DHFL.

“There were 70,000 creditors of DHFL. Most are recovering nearly 46 per cent of their pending dues through successful completion of the resolution process,” read the statement. 

“...the transaction will lead to a reduction in the weighted average borrowing cost by nearly 130 basis points and should further improve the asset liability management profile of our financial services business,” said Piramal Enterprises.  

 “The transaction will also significantly improve the utilisation of equity in our financial services business, with a net debt-to-equity of the financial services business getting efficient from 1.6x as of June to 3.5x in the near term,” it added.