DHFL crisis set to linger on as forensic audit points to massive fund diversion; banks unlikely to lend to crippled firm

  • The third-largest mortgage lender had sought a Rs 15,000-crore lifeline from the lenders as they finalise the resolution plan, which may also include picking up 51 percent equity in the company by converting their debt into equity

  • KPMG, which has carried out the forensic audit has submitted a draft report to the lenders, which has reportedly found that the DHFL promoters had diverted nearly Rs 20,000 crore of bank loans to its related entities

  • The beleaguered home financier owes Rs 83,873 crore as of 6 July, 2019 to banks, the National Housing Board, mutual funds and bondholders, including retail bondholders

Mumbai: In more troubles for mortgage lender DHFL, the lenders who are awaiting the final go-ahead for a resolution plan have hit a stonewall after a forensic audit has reportedly found massive fund diversion by the promoters and thus are averse to lend any additional money to the crippled company.

The third-largest mortgage lender had sought a Rs 15,000-crore lifeline from the lenders as they finalise the resolution plan, which may also include picking up 51 percent equity in the company by converting their debt into equity.

KPMG, which has carried out the forensic audit has submitted a draft report to the lenders, which has reportedly found that the DHFL promoters had diverted nearly Rs 20,000 crore of bank loans to its related entities.

Emails from PTI sent to KPMG and DHFL did not elicit any response.

However, a DHFL source told PTI that the company is surprised at the purported KPMG report, as the consultancy was not asked to do any forensic audit on one hand and on the other it has not shared the report with them and neither have the banks.

However, a banker confirmed the report to PTI and said, "if a loan is given to a company which has siphoned off funds, there may not be any additional funding to that company. We don't want to get more money stuck with them anymore."

But the banker did not disclose the exact amount of funds that have been siphoned off by the debt-ridden housing finance company.

 DHFL crisis set to linger on as forensic audit points to massive fund diversion; banks unlikely to lend to crippled firm

Representational image. Reuters.

Under the draft resolution plan, the lenders would pick up 51 percent in the third-largest mortgage lender by converting a part of their debt into equity.

"The lenders are studying the draft forensic audit. The resolution plan is already in place. Now we have to see whether there really was any siphoning of funds. Once it is finalised then a call will be taken on the resolution plan," said another banker.

He said lenders consider only 50-52 percent of the total debt of Rs 90,000 crore of DHFL to be sustainable which means the lenders will have to take a massive haircut. Looking at the large haircut, banks are unlikely to give additional funds to the company.

"The concern is that if banks have to take a haircut of 40-45 percent, then why should they put additional money into the company," asked a senior banker.

The beleaguered home financier owes Rs 83,873 crore as of 6 July, 2019 to banks, the National Housing Board, mutual funds and bondholders, including retail bondholders. As of 6 July, its secured debt was Rs 74,054 crore and the unsecured debt stood at Rs 9,818 crore.

The DHFL source claimed that that seven other agencies appointed by the lenders have not found anything seriously wrong with the company.

Since August, as many as six agencies have carried out various reports on DHFL. While CBRE checked the project loans; JLL Property Consults checked its mortgage loans; Cushman & Wakefield studied its large project loans; Desai & Diwanji carried out legal due diligence on the company, and India Ratings and Icra Ratings evaluated the draft resolution plan, the source informed.

"KPMG was tasked with a special audit and not a forensic audit," the source said, adding even bankers have not sounded them out on the report.

"The resolution plan was accepted by the bankers consortium and the inter-creditor agreement signed by all the banks after these rating agencies cleared it," the source said, adding following this banks appointed a steering committee of seven banks to take the final resolution plan to all-lenders for consent and execution.

"The company remains committed to working with their lenders on the debt resolution plan, the source added.

It can be recalled that last week, Kotak Mahindra Asset Management and Axis Asset Management had moved the Bombay High Court seeking a direction to DHFL to disclose all its assets and liabilities and also to temporarily prevent it from making further payments/disbursements to secured and unsecured creditors, except certain payments made on pro-rata basis to secured creditors.

Earlier this month, Edelweiss AMC had also moved the HC seeking similar directions to DHFL.

DHFL has been facing liquidity issues since last September and yet has paid back Rs 41,000 crore of its financial obligations through a combination of securitisation of assets and repayment collections since.

The Wadhawan family, who owns a little over 39 percent in the company, has been looking at various ways to come out of the stress which first came to light late last year following the IL&FS bankruptcy. These include selling stakes in group entities, including in the flagship to the extent of giving up management control.

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Updated Date: Oct 23, 2019 07:23:15 IST