DHFL Looks To Sell Stake In Life Insurance Venture Outside IBC
Dewan Housing Finance Corporation Ltd., which is under insolvency resolution proceedings, is looking to sell its 51% stake in unit Pramerica Life Insurance for Rs 2,500 crore, according to two people with direct knowledge of the matter.
The sale will take place outside Insolvency and Bankruptcy Code resolution process which is currently underway, the people told BloombergQuint on the condition of anonymity. Since the stake in Pramerica Life Insurance is owned via DHFL Investments Ltd., a wholly owned subsidiary of DHFL, lenders to the housing finance company can attempt a sale outside the bankruptcy process.
According to the people quoted above, the sale process will be initiated in a few weeks and the sale proceeds will add to the housing finance company’s cash holdings, making it a more attractive proposition for bidders.
Pramerica Life Insurance, formerly known as DHFL Pramerica Life Insurance, is a joint venture of DHFL Investments (51%) and Prudential International Insurance Holdings Ltd (49%), a wholly owned subsidiary of Prudential Financial Inc. As per public disclosures listed on the insurance company’s website, it reported a net profit of Rs 7.46 crore for the quarter ended March 31 compared with Rs 30 crore a year ago. It collected premium worth Rs 293 crore in the January-March quarter.
Emails sent to the RBI-appointed administrator for DHFL and Wadhwan Global on Tuesday went unanswered.
Side Stepping Promoters
This is not the first time that DHFL’s stake in Pramerica Life Insurance is being considered for sale. In February last year, Kapil Wadhawan, chairman of DHFL had told analysts that the housing finance company was looking to exit non-core investments as part of its deleveraging strategy. DHFL had been facing liquidity issues since October 2018. It was finally admitted for insolvency in December 2019.
Wadhawan and his brother Dheeraj Wadhawan are currently under investigation by the Central Bureau of Investigation and the Enforcement Directorate. Both brothers are currently in custody.
According to the people quoted above, Wadhawan Global Capital, the promoter firm of the DHFL Group, has invested Rs 2,000 crore through compulsorily convertible debentures in Pramerica Life Insurance.
However, lenders to the housing finance company are looking to prove that this was a fraudulent transaction where funds from DHFL were misappropriated for investment in the life insurance venture. If they are able to prove in court that the transaction was fraudulent, Wadhawan Global stands to lose its investments, the people added.
DHFL had been actively exiting its subsidiaries, as part of its measure to reduce group level debt and focus on its core operations. The housing finance company had sold its entire stake in education financier Avanse Financial to Warburg Pincus in March 2019. After that, it sold its entire stake in its affordable housing financing subsidiary, Aadhar Housing Finance, to Blackstone. In July last year, DHFL sold its stake in DHFL Pramerica Asset Managers to its joint venture partner PGIM Inc.
DHFL Insolvency Drags On
Meanwhile the insolvency process for DHFL continues to drag on.
The lenders are currently in the midst of a bidding process where at least two dozen interested bidders submitted initial interest.
Lenders to the housing finance company had decided to split the company’s loan book into three — retail, healthy wholesale loans and slum rehabilitation projects — to find buyers. The bidders were permitted to submit bids for a portion of the loan book or the entire portfolio, depending on their risk appetite.
Bain Capital, Welspun Group, KKR & Co., Asset Reconstruction Company of India Ltd. or Arcil and Oaktree Capital are among those who have submitted bids for the entire DHFL portfolio. While Deutsche Bank, Baring Capital, Edelweiss Group and the Piramal Group have decided to bid for parts of the portfolio, BloombergQuint had reported earlier.
Final bids are expected to be submitted in the first week of August.
The housing finance company restarted lending operations in January, by lending up to Rs 500 crore each month, BloombergQuint had reported. However, since India went into a nationwide lockdown in March, the lending operations have been suspended again, one of the two people quoted above said. Currently, the company is trying to recover loans from its borrowers through digital payment methods, since physical collections are not possible in many regions which are under lockdown, this person added.
Financial creditors to DHFL have filed claims worth over Rs 86,000 crore, where State Bank of India has the highest amount of claims against the company worth over Rs 10,000 crore. The company also owes nearly Rs 5,400 crore to fixed deposit holders.