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DHFL’s Stock May Not Be Out Of The Woods Yet Despite Wadhawan’s Clarifications

The stock halted five-day losses to end 3.9 percent higher today as the management tried to allay investor concerns.

Workers prepare reinforcing steel in a construction site in Delhi, India. (Photographer: Ruhani Kaur/Bloomberg)
Workers prepare reinforcing steel in a construction site in Delhi, India. (Photographer: Ruhani Kaur/Bloomberg)

Shares of Dewan Housing Finance Ltd. have tumbled nearly 45 percent since the investigative website Cobrapost alleged financial irregularities by the group.

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The stock halted five-day losses to end 3.9 percent higher today as the management tried to allay investor concerns. Kapil Wadhawan, chairman and managing director, in an interview with BloombergQuint, defended lending to group companies and denied allegations of any wrongdoing.

Here’s what he said:

On Interest Of Stakeholders

Wadhawan said he would urge bondholders and creditors to only follow the facts that the company lays out. “We have sold stake in Aadhar Housing Finance and will look to continue on this path,” he said.

The company has already conducted two conference calls in the past two weeks and has given several interviews to allay concerns.

Sentiment Still Negative: Still, at least two fund managers told BloombergQuint—requesting anonymity as they aren’t allowed to speak to the media— that the sentiment against the mortgage lender is very strong and might take time to turn around even if it sells more stake in other businesses.

On Delay In Responding To Allegations

The complaint by the anonymous whistleblower came in the third week of December and the company filed a counter-complaint against the allegations and informed the board, Wadhawan said, rejecting that there was any delay. The complainant went missing and the police responded that the address of the complainant doesn’t even exist.

Large Loans To Firms With Low Net Worth

Wadhawan said these involved special purpose vehicles working on slum rehabilitation schemes. All projects are carried out under specific SPVs and the asset cover provided was more than three times the market value. Earlier in an investor call, the company had said regular payments had been made in all loans cited by Cobrapoast.

Concerns Remain: The money lent to companies with low net worth against higher collateral, even if permitted by law, appears risky. Senior executives at other mortgage lenders told BloombergQuint requesting anonymity that they found the structure unusual. Wadhawan couldn't explain that.

Loans To Shell Companies

All the companies that have received loans are legit and the money was given against full security of the projects, Wadhawan said. Once projects start realising cash flows, they would repay principal and interest to Dewan Housing Finance, he said, adding that none of the companies have any connection with the promoters. In an earlier call with investors, the company had said none of them had been identified as shell firms by the Ministry of Corporate Affairs.

Aadhar Housing Stake Sale

The stake sale in affordable housing arm will get Dewan Housing Finance over Rs 200 crore, Wadhawan said.

Not Enough

That’s not big enough to pull the mortgage lender out of the liquidity crunch.

To be sure, in the investor call, the company had said it expects to raise Rs 500 crore by selling stake in other businesses. This includes exiting education loan provider Avanse Financial Services Ltd. and life insurance operations. The company also signed binding pacts to exit asset management business.

Rating Downgrade

CARE Ratings has already downgraded the company’s Rs 1.2-lakh-crore debt. Wadhawan said the voluntary action by rating agencies has been a surprise because the company’s fundamentals are sound.

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Road Ahead

The business was impacted for the industry at large and not just Dewan Housing Finance, Wadhawan said, referring to the liquidity crunch triggered for non-bank lenders after the crisis at IL&FS group. Dewan Housing Finance was also looking for a strategic partner, he said.

The company also appointed a new chartered accounted and is in touch with the Indian Banks’ Association, which will appoint an IBA- empanelled expert to look into the matter.

Watch the entire interview here: