Mortgage lender Dewan Housing Finance Corporation (DHFL) may finalise plans to sell stake in the company, a move that would help it bring in a new investor and shore up its capital, over the next two weeks.
“The process of identifying a strategic investor is nearing completion, which will bring in an equity investor into DHFL to bolster its capital base. The board will be reconvening in the next two weeks to look through the potential proposals and will decide accordingly on the way forward,” said Kapil Wadhawan, chairman and MD.
The troubled company has already sold 9.15 per cent shares in Aadhar Housing Finance for Rs 205 crore to private equity firm Blackstone, offloaded 30.63 per cent stake in Avanse Finance Services to Olive Vine Investments, an affiliate of Warburg Pincus, for Rs 304 crore and is also selling its entire shareholding in DHFL Pramerica Asset Managers, as a part of its asset monetisation plans.
Shares of DHFL, however, plunged 29 per cent on Monday after the company, already struggling to meet its debt repayments amid a liquidity crisis, warned it may not be able to continue as a going concern.
Many non-banking finance companies, including DHFL, saw liquidity dry up in the months following the collapse of infrastructure finance giant IL&FS last year. As DHFL missed its interest payments, credit ratings agencies had downgraded its debt instruments to ‘D’ or default grade.
Over the weekend, the company reported its earnings for the fourth quarter; it posted a net loss of Rs 2,223 crore in January-March, versus a net profit of Rs 134 crore a year ago. The company’s market cap on Monday stood at Rs 1,522 crore. DHFL also separately said it had failed to make interest payments worth Rs 28 crore.
Troubles for companies like DHFL began in the backdrop of the IL&FS crisis. As the infra lending giant defaulted, banks as well as mutual funds, which lend to NBFCs, reduced their exposure to the sector. Typically, NBFCs raised short-term funds via issue of commercial paper and the money was used to provide medium to long term loans like auto loans, home loans and loans to developers. But, with liquidity drying up, companies have struggled to raise fresh funds, which has in turn affected their lending. The rating downgrades at DHFL further had an impact on its ability to raise funds.
“The company's ability to raise funds has been substantially impaired and the business has been brought to a standstill with there being minimal/virtually no disbursements,” it said in its notes to earnings.
These developments, including the downgrades and “substantial financial stress” it has undergone in the second half of last financial year, may raise a “significant doubt on the ability of the company to continue as a going concern,” it further warned.
The disclosures have clearly got investors worried. DHFL shares hit a fresh low of Rs 46.70, before closing at Rs 48.50 on the BSE, versus previous close of Rs 68.45. The stock has lost almost 92 per cent of its value over the past one year.
The company’s management remains upbeat in overcoming the crisis.
“Since the last nine months, with single minded focus, we have met all our financial obligations and are looking to return to business normalcy at the earliest. Since September 2018, DHFL has managed to make repayments of over Rs 41,800 crore, primarily through securitisation of assets and repayment collections,” said Wadhawan.
He further said that DHFL was in advanced stage of submitting its resolution process under the inter-creditor agreement entered into by banks.
“We are closely working with the stakeholders/creditors to ensure that there is a comprehensive resolution, without any hair cut to the lenders,” the housing finance company said.
