In the immediate aftermath of a KPMG forensic audit report that highlighted likely cases of fund diversion and related party transactions at DHFL, the Serious Fraud Investigation Office (SFIO) last week ordered the probe, likely halting the current process to restructure Rs 83,873 crore in outstanding debt at the home financier. Bankers said the probe might prompt some potential buyers to stay away, as would the suggested capital structure in the current plan.
“The resolution plan submitted by the company envisaged that the existing promoters would continue to hold a minority stake in the company,” said a senior banker engaged in the debt resolution.
Cannot be Taken to NCLT
“Now, that possibility is ruled out. How can we do business with people who are accused of committing this fraud?” said the banker. As the law stands today, DHFL cannot be taken to the bankruptcy courts since it is a financial services company.
On September 28, in a notice to stock exchanges, DHFL had proposed repaying creditors from the company’s receivables over a period of 10 years or more, depending on the category of loans.
The plan also included giving banks and other institutional creditors an equity stake of 51% in the company at Rs 54 per share. That meant the promoters’ stake in the company would have dropped proportionately to below 20% after the debt recast.
“The KPMG audit has so far unearthed about Rs 15,000 crore in related party transactions. There is money trail involving directors connected to this company. Now, with the SFIO probe on, there could be a criminal investigation into the promoters,” said another banker involved in the negotiations. “There are also concerns that government agencies will attach the assets of the company. All these factors have put a question mark on the plan.”
Media reports suggested Rs 31,000 crore may allegedly have been diverted from the company, and these funds would have been provided as loans to related parties. Bankers have asked the company to reply to these findings of the KPMG forensic audit.
“We have some idea on the cash flows and the retail business. But in the wholesale book, we always knew that something was amiss as assets were not being created,” said a third banker involved in the process. “Now, this audit has thrown up more questions. We are miles away from a resolution. There are cases where no trail is available unless the company provides more data.”
Bankers believe the ongoing probe and delays could impact the healthier retail book as customers may delay or default on payments.
The company’s retail loan book, including mortgage loans to individuals, is worth Rs 35,233 crore. It is reportedly generating sustainable cash flows. The problem loans are wholesale loans totaling Rs 47,610 crore: These include project loans, loans to builders for slum rehabilitation (SRA) projects, and loans against property.
“We have been evaluating these loans and our estimates are that around Rs 13,000 crore of these loans to builders are clean, with regular payments and solid assets where recovery is possible. In the other assets, there is land and they are backed by property transactions,” said the first banker cited above.