RBI Finally Dismisses DHFL Board, to Initiate Insolvency Proceedings
The Reserve Bank of India (RBI) has decided to supersede the board of directors of Dewan Housing Finance Corp Ltd (DHFL) due to governance concerns and defaults by DHFL.
 
"The Reserve Bank also intends to shortly initiate the process of resolution of the company under the Insolvency and Bankruptcy (Insolvency and Liquidation Proceedings of Financial Service Providers and Application to Adjudicating Authority) Rules, 2019 and would also apply to the National Company Law Tribunal (NCLT) for appointing the administrator as the insolvency resolution professional," the central bank says in a release.
 
RBI also appointed R Subramaniakumar, former managing director (MD) and chief executive (CEO) of Indian Overseas Bank as administrator on DHFL.
 
DHFL has been tottering and has faced allegations of large-scale loot for over 10 months now. In December 2018, Moneylife wrote about how loans to promoters and poor disclosure were used to boost net worth and valuation. 
 
Last month, the Registrar of Companies' (RoC) regional office in Mumbai had recommended action by the Serious Fraud Investigation Office (SFIO) against DHFL in its report to the ministry of corporate affairs (MCA).
 
DHFL, a non-banking finance company (NBFC), had earlier said it was working on a debt resolution plan with lenders to protect the interests of its stakeholders.
 
As of 6 July 2019, DHFL had a total debt of about Rs1 lakh crore, in which banks have an exposure of Rs38,342 crore.
 
In August, the DHFL board approved a proposal to convert its debt into equity, which will give banks control of the mortgage lender that has been struggling to meet its payment obligations.
 
DHFL, which is the country's third largest mortgage lender, had sought a Rs15,000-crore fund support from creditors to start giving loans to viable projects while their lenders finalise the resolution plan. The plan could also include picking up 51% equity in the company by converting their debt into equity.
 
Audit firm KPMG, which has carried out a forensic audit of DHFL, has submitted a draft report to the lenders. Initiated by the lenders, the findings of the forensic audit can affect a proposed debt-restructuring plan aimed at reviving DHFL. It may also prompt these lenders to push for a management change in the Wadhawan family-run company.
 
The Wadhwan family separated in 2008 and, after a formal separation agreement in 2010, DHFL was with one part of the family and HDIL with another. Both sides stand accused of large-scale misuse of funds. This raises serious questions about the role, responsibility, due-diligence and accountability of lenders, who are now running helter-skelter to salvage what they can of their massive loans, while retail investors and depositors are left to fend for themselves.
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    COMMENTS

    Ramesh Poapt

    3 weeks ago

    what are the chances of debenture holders' money coming back, time involved
    haircut, if any. your (ML) comments of that please.

    Kochar Bipin

    3 weeks ago

    Kudos to RBI. DHFL has been wilfully defaulting only on secured debentures who have first charge on all its assets while servicing unsecured bank loans and fixed deposits. RBI administrator should now immediately work with debentures trustee to ensure that all dues of debenture holders are paid within two weeks.

    S Balakrishnan

    3 weeks ago

    Along with ilfs the biggest fin fraud in current times

    Nakul Kumar Reddy

    3 weeks ago

    Verdict came ,rbi dismissed

    Aditya Singh

    3 weeks ago

    Nice

    Hudaf Shaikh

    3 weeks ago

    Huge sums of money were siphoned off in the past 1 year under guise of paying off unsecured commercial papers - further, a lot of the assets too were siphoned off under guise of asset sales and securitization.

    Under NCLT, it is clear that these bogus sales of assets and securitizations will be disallowed - thus will benefit all secured creditors.

    REPLY

    Sumer Chandra Jain

    In Reply to Hudaf Shaikh 3 weeks ago

    Always late to act.How much already siphoned and how much remaining for ordinary depositors is to be seen.

    Telecom tariff hike may lead to slower net subscriber additions: BofAML
    The consequences of tariff hike by operators could be continued SIM consolidation leading to slower net additions for the industry, broking firm Bank Of America Merrill Lynch (BofAML) said on Wednesday.
     
    "After steady 8-9 million subscriber additions in the last few months, Jio net adds for September slowed to 6.9 million. We remain uncertain if this was led by the tariff change impact or a one-off slowing month," the BofAML report said.
     
    "Bharti and VIL Vodafone Idea Ltd) showed negative net adds in Sept-19. In the coming months as telcos take tariff hikes, we see continued SIM consolidation leading to slower net adds for the industry", the broking house said in its analysis of the consequence of the tariff hike decided by the companies.
     
    Earlier this week, Reliance Jio, Airtel and Vodafone all announced tariff hikes to be effective from next month.
     
    As per the September figures of telecom regulator Trai, Vodafone Idea and Bharti Airtel lost over 49 lakh users in September, while Reliance Jio added 69.83 lakh new users to its network. 
     
    Jio had added 84 lakh subscribers in August. In October, Reliance Jio announced that it will start charging 6 paise per minute for calls that are made to other networks.
     
    The BOfAS ML report further said as Bharti has a higher proportion of high-end users and through them it is looking to improve their average revenue per user (ARPU), it expects the company to face the least negative elasticity impact. 
     
    "We also expect capex investments to remain low as highly unsustainable data allowances reduce," the report said. 
     
    The report also says there is a high expectation from industry of the government providing relief. 
     
    " While the government has not yet indicated the sector relief package, we consider market expectations for relief to be high and hence see risks of disappointment. If there are no material up-front relief offerings by the government, then we believe it doesna't help the sector much. It appears that the government/regulator wants telcos to focus on improving their revenue momentum to repair the sector over any material sector relief benefits", the report said.
     
    The report noted that the latest tariff hike is real and sustainable.
     
    "The Indian telcos have disappointed in the past with tariff hikes, as they have not materialized as expected and negative elasticity has forced telcos to reverse or one of the telcos tried to cut to gain traction. We believe it's different this time," the report said. 
     
    "Given sector stress and government focus, we expect the tariff hike to be sustained for the next few months. We consider VIL to be the biggest beneficiary, but overhang from the AGR (adjusted gross revenue) case still puts a question on long-term recovery," it said. 
     
    "We find Bharti Airtel to be the best telco to play this tariff hike as we believe a sustained tariff hikes, market share gains and government relief will help business momentum," it added. 
     
    Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
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    Stressed Real Estate Assets Offer Investment Opportunity to Institutional Investors?
    With rising number of bankrupt companies, real estate assets offer the much needed liquidity cushion to clear debt. 
     
    • Real estate stressed assets deals of about $1 billion transacted in 2019
    • 87 cases of real estate companies under liquidation as on 30 September 2019
    • Residential segment with stalled projects worth $66 billion to provide huge opportunity
     
    Institutional investors have made a solid start by investing about $1 billion in stressed real estate opportunities. This strategy is expected to gain pace as the Insolvency and Bankruptcy Code (IBC) law, introduced in 2016, gets more established in the country. Corporates saddled with huge debt have been liquidating real estate assets, leading to new opportunities. Investors are evaluating various options including acquiring non-performing assets, distress sale and entity level stake.
     
    Rising interest of investors
     
    The recent stressed asset deal has been the sale of an information technology (IT) park in Bengaluru by Café Coffee Day Enterprise Ltd for $385 million to reduce its debt.
     
    Blackstone and Salarpuria Sattva Developers have acquired the 90-acre, IT-focussed Global Village Tech Park. Similarly in Hotel sector, Brookfield has received approvals to acquire assets of Hotel Leela Venture comprising key hotel properties in Delhi, Bangalore, Udaipur and Chennai for $564 million. 
     
    The capital commitment by institutional investors gives comfort to the lenders leading to faster resolution in these deals. Such deals also provide opportunity for investors to optimise their returns in line with underlying risks. 
     
    Housing offers huge potential
     
    However, in the current scenario, it is the residential real estate segment that presents the maximum amount of stressed assets. India’s residential sector has been reeling under the pressure of delayed or stalled projects with 4.54 lakh units running behind their completion dates. Some of them are already under bankruptcy proceedings. The value of these projects is estimated to be $66 billion. 
     
    The debacle of non-banking finance companies (NBFCs) and subsequent liquidity crisis added to the problems of most of these projects. The closing of refinance window led to many stalled projects for want of finance. This coupled with buyer’s preferring to look at ready-to-move-in properties affected the housing projects. 
     
    In order to ensure that delivery of homes locked in stalled housing projects, the government announced a special funding window for stalled affordable and middle-income housing projects. This fund with commitment from the Government and other lending institutions is expected to be $3.5 billion. This special fund is expected to infuse the much needed liquidity, but will fall short of meeting the entire requirement. 
     
    The legal framework of IBC
     
    This provides opportunity for institutional investors to acquire stuck projects and assets at distress value and make them viable. The legal framework under the IBC gives the required timeliness and assurance to investors as well lenders. 
     
    The centre introduced the IBC in 2016 to set a procedure to deal with bad loans plaguing the banking sector. This brought about a complete change in attitude towards the resolution. The defaulting company use to drag the process leading to erosion in its value and leaving little for the creditors. The bankruptcy procedure has evolved very soon since it implementation and is expected to improve further. 
     
    As per the Insolvency and Bankruptcy Board of India, a total 115 insolvency cases have been filed as of September 2019 under real estate category. Of these 87 cases are under process while 28 are closed.
     
    Hopefully, soon the challenges of the sector will be over. Recovery in housing sales, implementation of Real Estate (Regulation and Development) Act (RERA) and liquidity infusion from the government are likely to improve the sentiments. As a result, the growth will be reflected in coming quarters. 
     
    (Ramesh Nair is CEO & Country Head for India at JLL)
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    COMMENTS

    Sanjeev B

    3 weeks ago

    "...4.54 lakh units running behind their completion dates. Some of them are already under bankruptcy proceedings. The value of these projects is estimated to be $66 billion. "
    So according to this estimate, each of these properties is worth Rs.1 crore on average. That in my opinion is a huge overestimation. The average price for these 4.54 lakh properties will be closer to 50 lakh per property. So then the value immediately comes down to half: $33 billion. And this is assuming that the properties are ready for occupation, which is definitely not the case for 90% of these properties. So if buyers have to spend another $5 to 6 billion to make them ready to use, they will not pay more than $15 billion for the whole lot.

    Builders and lenders must be prepared to take a large haircut to offload their items. Welcome to real market economics, like the rest of us in other industries.

    Nakul Kumar Reddy

    3 weeks ago

    DVR or KVR

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