DHFL aims to clear all dues by the end of 'cure period', rescale business

According to a company source, the group will repay the dues by Thursday, even as its Managing Director and Chief Executive Officer Kapil Wadhawan said payments will be made on Monday

Dewan Housing Finance Corporation (DHFL) is confident of honouring its repayment obligations by the close of the seventh working day (June 13). 

Of the Rs 961.95 crore due on Tuesday (June 11) towards non-convertible debentures, the company has already paid Rs 276.05 crore of its obligations in interest and principal. More importantly, the company has paid interest of Rs 59.74 crore to 35,595 of its retail investors. The dues now are towards institutional investors of its public issuance, according to a filing of the company. 

The interest payment was due on June 4. The company has a ‘cure period’ of seven working days to make good on its payments. But rating agencies downgraded the company’s instruments to ‘D’, or default grade. 

A company official said it had made additional payments towards its fixed deposit holders on Friday. The payments made on Friday amounted to Rs 350 crore. According to a company source, the group will repay the dues by Thursday, even as its Managing Director and Chief Executive Officer Kapil Wadhawan said payments would be made on Monday.

Indeed, a portion of the money could be paid on Monday itself. The company is expecting Rs 2,300 crore from buyers of its retail assets in Aadhar Housing Finance and Avanse Financial Services on Monday. This money, along with securitisation of its retail lending assets, can be utilised to repay obligations in the coming months, the executive said.

“After this storm is over, we will have to rescale our business. We cannot do that if we hurt the trust of our investors. We will repay everything that we owe within the agreed timelines by selling our assets,” the executive said, adding in the next two months, Rs 3,000 crore of repayments will be due. 

“We are confident of meeting this obligation,” he said. But he added that a borrowing window from the Reserve Bank of India (RBI) would help in addressing the liquidity constraint. 

The company also honoured its commercial paper dues of Rs 100 crore on Friday and has another Rs 650 crore of total commercial paper dues later this month. The total commercial paper outstanding is Rs 850 crore. 

According to analysts, the non-banking financial company (NBFC) segment, which employs close to 10 million employees, may have to shed a fourth of its workforce if a rescue package is not initiated. 

“No bank can survive if the repo window is closed for a week or two. But we have been able to sell our retail assets to survive. That speaks volumes about our good fundamentals,” said the executive. 

The RBI has already given its go-ahead for change in ownership in Avanse Financial Services, DHFL’s education loan arm, to an affiliate of the Warburg Pincus group. DHFL is expecting money to come in from the deals it has struck with Blackstone and Warburg Pincus on Monday itself. This will ease the liquidity crunch the company is facing. 

Company sources said now that the election is over, finalisation of deal with its strategic partner will be closed soon. Negotiations in this regard have been going on since the last three months. 

So far, the company has securitised close to Rs 29,000 crore of its retail assets to meet its obligations, and will continue to do so.  

“Since September 2018, DHFL has repaid close to Rs 40,000 crore of financial obligation. To ensure adequate liquidity to meet the repayments, DHFL also sold its strategic retail assets, including Aadhar Housing Finance, Avanse Financial Services, and DHFL Pramerica Asset Managers.  The company is committed towards ensuring repayment of all its obligations as well as onboarding the strategic partner for business,” DHFL said in a filing.

The company is also looking forward to banks opening up the lending channel to NBFCs. Currently most of the banks have hit their sectoral cap of 15 per cent of their lending book to the NBFC sector. The absolute amount can be freed up only when banks make progress towards recovery of their bad loans. This process will take another two-three months. 

According to rating agency CRISIL, DHFL’s cash and liquid investments have decreased from Rs 4,668 crore (as of March 31) to Rs 2,775 crore (as of April 30).

The generation of additional liquidity will continue to be dependent on timely fructification of efforts made by DHFL, including sale of investments, induction of strategic investor, and asset pool sell-downs, added CRISIL.

DHFL in a press statement said it is seeking calcification from the rating agencies on the rating downgrades as they have been meeting their financial obligations.

Because of liquidity constraints, disbursal of loans by mortgage lenders fell drastically. Disbursal of DHFL in the third quarter of 2018-19 saw a 95 per cent decline as it disbursed just Rs 510 crore. In the fourth quarter, the situation worsened for DHFL, with allegations levelled against the promoters of the company of siphoning off funds by an online portal, resulting in an internal audit of the firm by an independent auditor.

An independent report commissioned by the audit committee of DHFL gave a clean chit to the firm on allegations of routing money through shell spcompanies. 

 However, it alleged that some money may have been lent to entities to buy shares of a company floated by the promoters of DHFL. 

The audit report said loans given for slum rehabilitation projects to four real estate companies were probably used to buy shares of another real estate company (Darshan Developers) held by Kyta Advisors.

The present situation
 

• DHFL has paid Rs 40,000 cr of its dues so far
• Securitised Rs 30,000 cr of its retail assets
• On Friday, it repaid Rs 350 cr
• Balance to be paid by Thursday, the end of the ‘cure period’
• Expects Rs 2,300 cr on Monday from buyers of Aadhar Housing Finance
• Confident of meeting Rs 3,000 cr dues in the next two months
• Expects bank lending to NBFCs to begin in the next two months