Billionaire pharmaceutical Ajay Piramal increases stake in financial services with $ 4.7 billion acquisition of bankrupt mortgage lender
On Wednesday, Piramal Enterprises, the flagship of Ajay Piramal’s pharmaceutical and financial services, completed the $ 4.7 billion acquisition of Dewan Housing Finance Corporation Ltd. (DHFL), creating one of the largest affordable housing finance companies in the country.
Under the terms of the agreement, Piramal Capital and Housing Finance, a subsidiary of Piramal Enterprises, and DHFL will merge. The combined entity will be present in 24 states with 301 branches and more than 2,000 employees. The average loan amount will be around 1,700,000 rupees ($ 23,000), offered to clients who live on the outskirts of Tier I, II and III towns.
The acquisition of Piramal marks the first successful resolution in the financial services industry under the Indian Insolvency and Bankruptcy Code, which has faced many challenges since its inception in 2016. About 70,000 Dewan creditors Housing will recover almost half of their contributions under the agreement with Piramal.
Creditors, 94% of whom 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 reserves. Piramal has agreed to pay $ 2 billion upfront in cash and the remainder in 10-year non-convertible bonds.
The acquisition has been approved by the National Company Law Tribunal, the bankruptcy court which oversees these cases, and the Reserve Bank of India. It will five-fold the retail loan portfolio of Piramal Enterprises and help it move from wholesale loans to a combination of wholesale and retail loans.
It will also expand the company’s geographic reach to 24 states from 10 states and 236 cities from 40 cities. Piramal Capital has previously provided loans for homes, small businesses and working capital. The growth of the personal loan portfolio will increase capital efficiency allowing it to begin lending to used cars and motorcycles, education and small builders.
âThis accelerates our plans to become a diverse, digitally-oriented financial services conglomerate that focuses on meeting the financial needs of our country’s unserved and underserved customers,â said Ajay Piramal, president of the Piramal Group on Wednesday.
He added that âan important feature of any advanced economy is a robust insolvency code. Historic bankruptcy reforms have made it possible to resolve complex resolutions like this more fully and expeditiously. ”
Piramal became the highest bidder in the corporate insolvency resolution process, beating global asset management firm Oaktree Capital Management and the Adani Group led by Gautam Adani.
There was also an offer in December 2020 by the former owners of Dewan, Kapil and Dheeraj Wadhawan, to take over the business. The Wadhawan brothers, who are currently in jail in a separate fraud case they are challenging in court, have offered to pay off creditors in full. But the National Company Law Tribunal opted for Piramal, approving its offer in June.
The Piramal acquisition ends the Dewan Housing debt debacle, which erupted in 2018 amid a crisis in India’s non-bank financial sector. This was sparked by defaults by infrastructure lending giant Infrastructure Leasing & Financial Services, which pushed up the cost of funds for the entire non-bank financial sector.
For DHFL in particular, the problems began on September 21, 2018 when the sale of $ 42 million of debt securities by DSP Mutual Fund at a higher yield raised concerns about the company and its ability to access funds at a higher yield. lower cost. This sparked a collapse in Dewan Housing’s stock, sealing its fate. In November 2019, the Reserve Bank referred the troubled company to the National Company Law Court for insolvency proceedings.