Piramal group gets RBI nod for DHFL buy

Plans to merge it with its financial services biz

The Reserve Bank of India (RBI) on Thursday cleared the ~34,250-crore acquisition of Dewan Housing Finance Corporation (DHFL) by the Piramal group.

The Ajay Piramal-led group had outbid Us-based asset management firm Oaktree last month. Piramal plans to merge DHFL with its financial services business as soon as the National Company Law Tribunal (NCLT) approves the transaction.

“We understand that the RBI has approved the DHFL resolution plan from Piramal Capital and Housing Finance, submitted by the COC (committee of creditors),’’ the company said in a statement.

On January 15, the lenders to DHFL voted in favour of Piramal’s debt resolution plan for DHFL, paving the way for the turnaround of the bankrupt housing finance company. Piramal had offered upfront cash of ~14,700 crore, including cash on DHFL’S balance sheet, and a deferred component (non-convertible debentures) of ~19,550 crore.

The acquisition is in line with the Piramal group’s strategy to diversify its loan book, and a step towards the demerger of the group’s financial services and pharma businesses in future. A Piramal group official said the company planned to merge its financial services business with DHFL and retain all employees; it could even hire additional staff to grow the business.

DHFL was sent to the NCLT in November 2019 after the company defaulted on its debt worth ~90,000 crore and auditors found a ~15,000crore hole in its books. The promoters of the company are currently in jail and facing money-laundering charges.

DHFL was the first finance company to be referred to the NCLT by the RBI using special powers under Section 227 of the Insolvency and Bankruptcy Code (IBC).

The higher upfront cash tilted the scales in Piramal's favour and was scored higher by the COC. According to Piramal’s plan, the existing shareholders of DHFL will get zero value. The fixed deposit holders have not voted for both plans.

After the RBI clearance, the COC will now submit the plan for approval of the NCLT.

Piramal Capital and Housing Finance’s merger with DHFL will be effective from the date the NCLT approves the plan, thus adding 4,500 employees to the group and investing ~10,000 crore of Piramal Capital’s equity in the merged entity.

For Piramal, the merger with DHFL makes sense as it would give it a stable cash flow from retail customers at a time when its own corporate loan portfolio is under stress due to a slowdown in the real estate sector. For the nine months ended December 2020, Piramal’s financial services business had a total book size of ~46,370 crore.

DHFL shares, locked in 5 per cent upper circuit for the past few days, closed at ~18.05 apiece on Thursday.