Dewan Housing Finance Corporations (DHFL) has been facing difficulties since a long time now and recently another black cloud was formed on it. CRISIL, a credit rating agency, downgraded the credit ratings of the company’s commercial paper and is continuously on a watch negative. Being in a watch negative means that the rating agency is deciding to further downgrade the ratings of the company and chances are they will. The rating was downgraded from ‘A2+’ to ‘A3+’. The reason behind the downgraded ratings was that the liquidity profile of the company was deteriorated and furthermore the visibility of raising loans was low. After the down gradation of the ratings, on Thursday i.e. 2nd May 2019, the prices of DHFL shares dropped by 8% and on Monday, 6th May 2019, it plunged about 11% to Rs 139 intra-day.
Divesting Aadhar Housing Finance Ltd.
There were talks going on within the company to divest in Aadhar Housing Finance Ltd. A special committee of the board of directors was also set up in February to discuss this with the National Housing Bank (NHB) and get the approvals for the same. This was done as a remedy to increase cash flows and the liquidity of the company.
Recently, this awaited approval by NHB was given a green signal. The divestment in Aadhar Housing Finance will be carried out with BCP Topco VII Pte Ltd, the acquirer of the shares. This disinvestment was controlled by the private equity company Blackstone. About 9.15% of equity shares were mentioned in the stock exchange filing, which was the entire shareholdings held in Aadhar Housing Finance by DHFL. Blackstone has agreed to buy 80% of the shareholdings in Aadhar Housing Finance from Wadhawan Group and its mortgage lender subsidiary DHFL for an undisclosed amount of money. Wadhawan Group had 70% of the shareholdings while DHFL had around 9% of it.
Share prices still plunging
Even after getting the approvals to sell out the shareholdings of Aadhar Housing Finance which were expected to be a saviour for DHFL, the share prices are still decreasing day after day and the closing price on Wednesday i.e. 8th May 2019 was Rs 116.45 which dropped almost 13%. The stock also touched its 52-week low of Rs. 97. On 3rd June’19, the CMP of DHFL stood at Rs.113.20. On 4th June ’19, the opening price was up 0.92% at Rs. 114.25.
Therefore, DHFL’s decision to divest its stake in Aadhar Housing Finance was not in favour of the company. Amidst this deal, the Wadhawan Group was alleged to have illegally transferred public’s money of around Rs.31,000 crores. This was claimed to be loans taken by DHFL and moved out of the country by the Wadhawan Group. The allegations are denied by the group, still resulting in the decreased share prices of DHFL. Thus, a parachute for DHFL is needed but this deal of selling off the stake of Aadhar Housing Finance was not the one.