After forensic audit report, mutual funds plan to go after DHFL promoters

Many fund houses having exposure to Dewan Housing Finance Corp Ltd (DHFL) are keen to turn the heat on the promoters of the crippled mortgage lender.

These institutional lenders want Wadhawans, the promoter group, to arrange funds in the light of the findings of the forensic audit conducted by a Big4 firm.

The mutual funds (MFs) will soon raise the issue in the three-member committee formed by the Reserve Bank of India (RBI) to help the administrator in recovering about Rs 84,000 crore that DHFL owes to the system. One of the members is a senior office bearer of AMFI, the MF industry lobby.

“We will ask for the forensic audit from the banks. We have not seen it. According to media reports, the audit indicates gaps in the balance sheet. Based on the forensic findings, we would suggest appropriate action to recover money — even if it means filing a complaint with an enforcement agency,” CEO of one of the mutual funds told ET.

According to him, fund houses would also insist that while meeting the claims of retail investors, DHFL must refrain from paying retail investors in advance and should only release payments in cases where the investments have matured. “We want a fair waterfall mechanism in the debt resolution process,” said the person. As of July 2019, DHFL owed a little less than Rs 84,000 crore to banks, MFs, insurers, provident funds and bond holders, including retail investors. Of this, unsecured debt is less than Rs 10,000 crore.

AMCs for a Smaller Haircut

“With NS Venkatesh (the AMFI chief executive) joining the committee, we are better represented and have a represented and have a stronger footing. We will do everything possible to get back the money,” said the chief executive of another asset management company. Most fund houses feel that banks with around 50% of the exposure to DHFL debt as against only 5% by MFs have given the promoters a long rope.

Members of the Wadhawan family and a group entity own more than 39% in DHFL.

Irrespective of whether the resolution path entails a new promoter coming in to replace the existing promoter or a professional takes over and works with banks, MFs will put across the point that the extent of haircut that lenders will have to take will be smaller if enough pressure is put on the promoters for arranging funds. “Why should lenders take the entire hit?” said an asset manager.

Before the government expanded the scope of the Insolvency and Bankruptcy Code to cover nonbanking finance companies, some of the MFs had moved the Bombay High Court to protect their interest in DHFL.

The Insolvency and Bankruptcy (Insolvency and Liquidation Proceedings of Financial Service Providers and Application to Adjudicating Authority) Rules, 2019 allow the appointment of a panel to advise the administrator in the operations of the financial service company during the corporate insolvency resolution process.

Former managing director of Indian Overseas Bank R Subramaniakumar was appointed as the administrator for DHFL by RBI which has superseded the board of the company. The other two members of the advisory panel are Rajiv Lall, non-executive chairman of IDFC First Bank and NS Kannan, chief executive of ICICI Prudential Life Insurance.

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