Piramal Group completes acquisition of DHFL

The Piramal group has completed the acquisition of DHFL as it paid Rs 34250 crore to creditors in the first ever resolution in the financial services space using the Insolvency and Bankruptcy Code and the biggest one this fiscal.
"It's a defining milestone," Piramal group chairman Ajay Piramal said Wednesday. "This gives us the opportunity to address the financing needs of the under-served `Bharat' market in the affordable (housing) segment."

The total size of the resolution is Rs 38060 crore, which is about 46% of the total dues to the creditors. Out of this, Rs 34250 crore is being paid by the Piramal group and the balance Rs 3810 crore is cash balance lying with DHFL.

The payment by the group includes an upfront cash component of Rs 14,700 crore and issuance of 10-year non-convertible debentures worth Rs 19,550 crore carrying a coupon of 6.75% per annum.

Depositors of DHFL got around 23% of their money back. In absolute terms, they received a total of Rs 1250 crore out of Rs 5400 crore of deposits as per the resolution plan approved by the regulators.

Piramal Enterprises, a listed entity, will merge DHFL into its wholly owned Piramal Capital & Housing Finance, which is a registered housing finance company. "The merger will take place in a couple of weeks," Ajay Piramal said.

The merged entity is likely to have a loan portfolio of around Rs 65000 crore. The final calculations are yet to be completed, the group chairman said.

"We will use technology to become competitive," Piramal said. Majority of DHFL's borrowers are non-salaried in the tier 2 and tier 3 cities. There will also be a 130 basis points reduction in average borrowing costs.

The merger offers Piramal's financial services company a pan India distribution network with 287 branches and nearly 76000 customers on a platter. At present, Piramal Capital & Housing has merely 14 branches and 23,286 customers. The merger would also help in improving the asset liability portfolio and boost the share of retail loans to half.

The company, which has so far relied largely on wholesale business, is looking to raise the retail loan share to two-third in the medium term.

The merger would also improve utilisation of equity. "Our financial services business is adequately capitalised and there is no need to infuse more capital in the next five years," the chairman said.

Piramal Capital & Housing raised Rs 18,000 crore of equity in the last two years by selling its stake in companies and through issuing fresh shares.