How DHFL Loan Funds Made Their Way To Kyta - A Wadhawan Company
Did Dewan Housing Finance Corporation Ltd. use public money to directly or indirectly extend loans to entities owned by or associated with its promoters – the Wadhawans?
For several weeks BloombergQuint examined financials of over 40 entities, filed with the registrar of companies, to establish a money trail that indicates the non-banking finance company gave loans to real estate developers, ostensibly to develop projects, who in turn used the money to fund various companies owned or linked to the Wadhawans.
Some of these related party transactions were first reported by news website Cobrapost in January 2019. DHFL denied the allegations and insisted that “all loans are disbursed in the normal course of business in accordance with industry best practices and in compliance with all regulatory norms”.
In a special series of stories BloombergQuint reveals the modus operandi - of a complex web of transactions between entities whose ownership kept changing. But in most of them one thing remained constant - the Wadhawan connection.
The 36-year old investment company was promoted by DHFL founder Rajesh Wadhawan. Between financial years 2004-13, Kyta was owned by members of the Wadhawan family and private entities connected to them. Thereafter, in financial year 2013-14, ownership was consolidated in the hands of Rajesh’s son Kapil Wadhawan and family members Dheeraj Wadhawan and Aruna Wadhawan.
All three are also promoters of DHFL.
Kyta Raises Funds
In financial year 2013-14, Kyta issued preference shares worth Rs 2,222 crore to 27 entities.
A large portion, Rs 1,747 crore, was invested by four companies -
- Resources Realty Pvt Ltd.
- Yardstick Developers Pvt. Ltd.
- Wadhawan Holdings Pvt Ltd.
- Infill Retail ventures Pvt Ltd.
Filings show that in each of these four companies the Wadhawan family or its members directly owned 1.5 to 2.5 percent. The rest of the shareholding in each was distributed among a set of private companies, many of which were also listed as Kyta’s shareholders.
That indicates Kyta and its four key preference shareholders had common owners - the Wadhawans.
It’s not clear where these four companies sourced the funds to buy these preference shares – in their books a major source of funding is listed as ‘other payable’ in the current liabilities section.
But it is clear how they were able to cash out two years later. Using DHFL funds.
The DHFL Involvement
In financial year 2015-16, DHFL sanctioned total loans of Rs 2,400 crore to four private entities –
- RIP Developers Pvt. Ltd.
- Kanitha Real Estate Pvt. Ltd.
- Kamla Landmarc Real Estate Holding Pvt. Ltd.
- Avashya Real Estate Pvt. Ltd.
At the time, RIP Developers was owned by Gopal Dalvi and Shivram Dalvi and Kanitha Real Estate was a 100 percent owned subsidiary of RIP Developers. Together the two got a total loan of Rs 1,200 crore from DHFL for slum rehabilitation in Bandra area, Mumbai.
Kamla Landmarc is a company substantially owned by Jitendra Jain and family of Kamla Landmarc Group involved in development of residential and commercial projects. Avashya Real Estate is a wholly owned subsidiary of Kamla Landmarc. DHFL loaned these two entities Rs 1,200 crore.
In FY16 itself - the very year they got loans from DHFL - these four developers purchased Rs 1,635 crore of Kyta preference shares from 12 companies including Resources Realty, Yardstick Developers, Wadhawan Holdings and Infill Retail ventures.
Filings show that three of the four developers did not have any other significant funds besides the DHFL loans to purchase the preference shares. Emails seeking comments from these companies on the use of loan funds remain unanswered.
Between December 2017 and September 2018 the four developers repaid their loans to DHFL. The filings don’t detail their source of funds - except in the case of RIP Developers which received money from Kyta on redemption of preference shares.
Interestingly, of the 12 Kyta preference shareholders that sold shares to these developers, the key ones - Yardstick Developers, Resources Realty, Wadhawan Holdings and Infill Retail ventures - got Rs 1,512 crore. Most of which (Rs 1,383 crore) they used to pay back the loans taken to buy the Kyta preference shares in the first place.
These transactions show how loans from DHFL were used to purchase preference shares of a Wadhawan family company (Kyta) from entities connected to Wadhawans.
In February BloombergQuint asked DHFL about the use of its loan funds by these developers and the connection with Wadhawan entities. The company said it was awaiting the outcome of an internal investigation into the Cobrapost allegations.
"You are aware that over the last two weeks, we have issued various media statements as also clarifications. The clarifications issued by us clearly sets out the motivation of the complainant, and also states that statements, allegations and accusations contained in the complaint are utterly false and baseless.
Further, you are aware that the Audit Committee has already appointed an Independent Expert to look into the allegations covered in the complaint. Recently, as per the advice of consortium of Bankers, the Company has also decided to add one more expert from the Indian Bankers Association (IBA) approved list of auditors to carry out a review. The Company is also fully co-operating with any and all authorities, who are seeking clarifications and information from the Company.
In view of the above, it would be inappropriate to make clarificatory statements in the public domain. We will await the findings of the Independent Experts to deal with all allegations in detail. In any event, the Chairman has issued a clarificatory statement on the complaint, which is available on our website."
Last week the independent chartered accountant firm appointed by DHFL’s board submitted its report which, among other things said,
- Though DHFL is required to monitor post disbursal end use of funds by the borrowers, our examination indicates the monitoring in respect of 15 borrowers (loans amounting to Rs 7,485 crore) is significantly inadequate.
- There are certain instances of deviations and non-adherence to the terms of sanction of loans having major risk implications, especially in relation to post sanction monitoring of fund use by borrowers.