Ajay Piramal’s pharma and financial services flagship Piramal Enterprises completed its $4.7 billion acquisition of Dewan Housing Finance Corporation Ltd. (DHFL) on Wednesday, creating one of the largest affordable housing finance companies in the country.
As per the terms of the deal, Piramal Capital and Housing Finance, a subsidiary of Piramal Enterprises, and DHFL will merge. The combined entity will have a presence across 24 states with 301 branches and more than 2,000 employees. The average loan size will be around 1,700,000 rupees ($23,000), offered to customers who live on the outskirts of tier I, II and III cities.
Piramal’s acquisition marks the first successful resolution in the financial services sector under India’s Insolvency and Bankruptcy Code, which has faced numerous challenges since it was introduced in 2016. Roughly 70,000 creditors of Dewan Housing will recover nearly half of their dues under the arrangement with Piramal.
The creditors, 94% of whom had approved the deal, will receive a total of $5.2 billion. Piramal Enterprises will provide $4.7 billion with the remaining $500 million from DHFL’s reserves. Piramal has agreed to pay $2 billion upfront in cash and the rest through 10-year non-convertible debentures.
The acquisition was approved by the National Company Law Tribunal, the bankruptcy court that oversees such cases, and the Reserve Bank of India. It will expand Piramal Enterprises’ retail lending book fivefold and help it to pivot from wholesale lending to a mix of wholesale and retail lending.
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It will also expand the company’s geographical reach to 24 states from 10 states and to 236 cities from 40 cities. Piramal Capital has already been providing loans for homes, small businesses and working capital. The growth in the retail loan book will increase capital efficiency allowing it to start lending for used-cars and two-wheelers, education and to small builders.
“This accelerates our plans to become a leading digitally oriented, diversified financial services conglomerate that focuses on serving the financial needs of the unserved and underserved customers of our country,” said Ajay Piramal, chairman of the Piramal Group on Wednesday
He added that “an important characteristic of any advanced economy is a robust insolvency code. The landmark bankruptcy reforms have made it possible to solve complex resolutions like this in a more complete and timely way.”
Piramal emerged as the highest bidder in the corporate insolvency resolution process beating out global asset management firm Oaktree Capital Management and the Gautam Adani-led Adani Group.
There was also a bid in December 2020 by Dewan’s previous owners, Kapil and Dheeraj Wadhawan, to reclaim the company. The Wadhawan brothers, who are currently in jail in a separate case of fraud which they are contesting in court, offered to pay back creditors in full. But the National Company Law Tribunal opted for Piramal, approving his bid in June.
Piramal’s acquisition brings an end to Dewan Housing’s debt debacle, which erupted in 2018 in the backdrop of a crisis in India’s non-banking finance sector. This was triggered by defaults at infrastructure lending giant Infrastructure Leasing & Financial Services, which pushed up the cost of funds for the entire non-banking finance sector.
For DHFL in particular, the trouble started on September 21, 2018 when the sale of $42 million of debt paper by DSP Mutual Fund at a higher yield triggered concerns about the company and its ability to get access to lower cost funds. That triggered a crash in Dewan Housing’s shares, sealing its fate. In November 2019, the Reserve Bank referred the beleaguered firm to the National Company Law Tribunal for insolvency proceedings.