Mumbai, India : Piramal Enterprises Limited announced the payment of consideration for the acquisition of Dewan Housing Finance Corporation Ltd. (DHFL), marking the first successful resolution under the IBC route in the financial services sector. In value terms, the transaction is among the largest resolutions till date, setting the precedent for future resolutions in the sector.
Speaking on the occasion, Ajay Piramal, Chairman, Piramal Group said, “We are very pleased to announce the consideration payment made towards the completion of this exciting acquisition. 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.
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.’
Anand Piramal, Executive Director, Piramal Group said, “The combined entity will have 301 branches, 2,338 employees and over 1 million lifetime customers. We will be a dominant player in the fast-growing affordable housing segment. Over the last two years we have successfully built our next-gen technology platform, advanced analytics engine and AI/ML capabilities. This acquisition allows us to implement these technologies across a much larger base of customers. The new merged entity is poised to be at the forefront of the digital-first retail lending market in India.”
About the transaction
In January 2021, 94% of the Creditors of DHFL voted in favor of Piramal’s resolution plan. Approvals were also obtained from the RBI, CCI and NCLT for the completion of this transaction. As a part of the process, Piramal Capital and Housing Finance Ltd. (PCHFL) will merge with DHFL. The merged entity will be 100% owned by Piramal Enterprises Limited.
The creditors of DHFL (including FD holders) would recover an aggregate amount of ~Rs.38,000 Crores from the resolution process of DHFL. This amount comprises of (i) ~Rs. 34,250 Crores to be paid by PCHFL as a combination of cash and Non-Convertible Debentures and (ii) an amount of ~Rs. 3,800 Crores, which is the entitlement of creditors (as per the resolution plan), from the cash balance available with DHFL.
There were ~70,000 creditors of DHFL and most of them are recovering nearly 46% of their pending dues through the successful completion of resolution process.
The total consideration paid by the Piramal Group of ~INR 34,250 Crores at the completion of the acquisition, includes an upfront cash component of ~INR 14,700 Crores and issuance of debt instruments of ~INR 19,550 Crores (10-year NCDs at 6.75% p.a. on a half-yearly basis).
Transaction Synergies
The merged entity combines Piramal’s financial strength, core values and institutional credibility with DHFL’s geographic footprint and distribution network of 301 branches and 2,338 employees catering to ~1 million lifetime customers across 24 states – making it one of the leading housing finance companies in the country.
It creates an India-wide platform focused on the affordable segment (with average loan ticket size of nearly INR 17 Lacs) to address the diverse financing needs of the under-served and unserved ‘Bharat’ market – that represents Indian budget conscious customers at the periphery of metros and in Tier I, II and III cities.
Over the last two years, Piramal Enterprises strengthened its balance sheet to take advantage of such large opportunities by raising ~INR 18,000 Crores of equity. It reduced net debt-to-equity and shifted towards long-term borrowings, thereby creating a headroom for significant growth in the merged entity. The acquisition is a major step under the execution of a strategic roadmap to transform our financial services business.
This transaction will not only grow the retail loan book to ~5 times, but also lead to a significant diversification of the overall loan book. This paves the way for achieving nearly 50:50 retail wholesale mix in the near-term. The company will leverage the “phygital” lending platform driven by Machine Learning (ML) and Artificial Intelligence (AI), including the new mobile app.
In addition, the transaction will lead to a reduction in weighted average borrowing cost by nearly ~130 basis points and should further improves the Asset Liability Management (ALM) profile of our Financial Services business. The transaction will also significantly improve the utilization of equity in our Financial Services business, with net debt-to-equity of the Financial Services business getting efficient from 1.6x as of Jun-2021 to 3.5x in the near term.
| Parameters |
What changes? |
| |
|
| No. of Customers |
43 times increase from 23,286 to ~1 million in the number of lifetime customers |
| No. of States |
2.4 times increase in presence from 10 to 24 states |
| No. of Cities / Towns |
6 times increase in presence from 40 to 236 cities and towns |
| Branches |
22 times increase in the number for branches from 14 to 301 |
| Scale |
~5 times increase in the size of retail AUM |
| Diversification
|
From largely wholesale led to 50:50 retail wholesale mix in the near term |
Future Roadmap
India’s household credit to GDP at 12% is lowest among sizable economies of the world, indicating a huge untapped market potential for the housing finance business in India[1]. With major push from the Government of India towards affordable housing, the share of credit active customers in Tier 2 and Tier 3 cities/towns is significantly increasing over the last few years[2].
The acquisition will now provide an India-wide infrastructure with a large branch network as well as a sizable customer base that will leverage the technology-driven multi-product retail lending digital platform. It enables the company to significantly grow and diversify the retail loan book through product innovation, customised offering and superior customer experience. The share of retail financing is likely to improve to 50% in near-term and 67% in mid-to-long term. The growth in the retail loan book will facilitate capital efficiency in the financial services business.
The company will offer services such as used cars and two-wheeler loans; education loans for vocational and online courses; small builder finance to meet construction finance requirement; unsecured business loans; personal loans and loan against securities.
Piramal’s ‘Digital at the Core’ proprietary tech platform will extensively leverage Artificial Intelligence and Machine Learning, including the new mobile app, to create a seamless customer journey. Additionally, to maintain continuous innovation and improvement of its platform, Piramal has invested in a ~10,000 sq. ft—Centre of Excellence for Technology, Engineering and Data Analytics centre in Bangalore.
