Valuation drop, legal complications likely to hit HDIL's sale prospects

Suitors may prefer individual projects while bidding

Real estate major HDIL may find good offers hard to come by, given the slump in the real estate sector, litigation woes, and arrest of its promoters.

The Mumbai-based firm had earlier attracted attention from top players like Adani Properties, SunTeck Realty, and Suraksha Asset Reconstruction Company (owned by the Dilip Shanghvi family).

However, the entity is now in a legal quagmire because most of its projects are either hypothecated to DHFL or PMC Bank, both of which are in financial crisis themselves. It was the HDIL scam that caused PMC Bank’s downfall.

The HDIL group has several realty projects and land parcels in Mumbai, which could be taken over by new players — provided it is free of litigation. “The entire process is at an initial stage; we have just submitted the expression of interest. We will get more clarity once we get access to the data room,” said a bidder. “We just want to see what is left of the company,” he added.

Promoters and directors of HDIL, DHFL, and PMC Bank — all of whom are related to one other — are facing several investigations from the Enforcement Directorate, Central Bureau and Investigation (CBI), and local police. These investigations took off after several banks, fund houses, and PF bodies lost Rs 88,000 crore in DHFL, and depositors lost their savings in PMC Bank.

“There were so many complex transactions between the three — HDIL, DHFL, and PMC Bank — that it will take several months for investigating agencies to trace the funds,” said an auditor involved with the forensic auditing.

“It is difficult to arrive at any valuation for HDIL projects due to the legal complications. Most of the projects are hypothecated to DHFL, which itself is facing bankruptcy proceedings. Bidders have submitted EoIs just to know the juice left in these projects,” said a real estate consultant.

The symbiotic relations between HDIL and PMC Bank were exposed after the Reserve Bank of India (RBI) imposed a moratorium on the co-operative bank in September 2019. It was after the RBI’s inspection revealed that the lender had lent Rs 6,500 crore to HDIL, even though it had begun defaulting. After HDIL raised funds from both DHFL and PMC Bank, investigators discovered that these entities had common directors.

Waryam Singh, former chairman of PMC, had been a director in HDIL and even held 1.91 per cent stake in the firm till September 2017 — just a few months before the realty firm was sent to the bankruptcy court by lenders, in 2018. Singh then quit the HDIL board in April 2015, to return to PMC bank as Chairman — which started lending to HDIL indiscriminately.

In August 2019, the bank lent an additional Rs 100 crore to HDIL to help it repay Bank of India’s (BoI) debt under the one-time settlement (OTS) scheme. If the OTS was cleared, then HDIL would have been out of the IBC process initiated by BoI.

In February, several leading local and foreign financial institutions — including Aion Capital, Adani Capital, Hero Fincorp, KKR Credit Advisors, and Blackstone — submitted their EoIs for the now-collapsed DHFL. However, no one put in a bid, owing to the legal complications surrounding the company and the pandemic.

Prospective bidders were wary and cited fraud in the retail loan book unearthed by the ED, which claims the company used over 100,000 bogus retail customer accounts to siphon off Rs 12,000 crore. A similar fate awaits HDIL.