Graphic by Sarvesh Kumar Sharma/Mint, Photo by Ramesh Pathania/Mint
Graphic by Sarvesh Kumar Sharma/Mint, Photo by Ramesh Pathania/Mint

Report claims DHFL siphoned off 33,000 crore, shares tank 8%

  • DHFL promoters siphoned off public money via advances to shell firms, illegal round tripping, says report
  • These companies are related to DHFL’s own primary stakeholders Kapil Wadhawan, Aruna Wadhawan, and Dheeraj Wadhawan

Shares of Dewan Housing Finance Corp Ltd (DHFL) saw a sharp sell-off on Tuesday following a report by media organization Cobrapost, which accused the company of a financial scam worth 33,000 crore. Shares of DHFL ended at 170.05, down 14.80 or 8.01%, on BSE.

“Promoters of DHFL siphoned off 33,000 crore in public money through secured and unsecured loans and advances to shell companies, illegal round tripping, tax avoidance and insider trading," Cobrapost said at a press conference on Tuesday, and claimed that it was India’s “biggest financial scam".

The investigation by Cobrapost claimed that the scam has been pulled off primarily by sanctioning and disbursing astronomical amounts in secured and unsecured loans to dubious shell/pass-through companies. These companies are related to DHFL’s own primary stakeholders Kapil Wadhawan, Aruna Wadhawan, and Dheeraj Wadhawan. ,The loans were secured through their proxies and associates, who have in turn passed the money on to companies controlled by the Wadhawans. The report further alleged that the money has been used to buy shares/equity and other private assets in India and abroad, including in the UK, Dubai, Sri Lanka, and Mauritius.

DHFL called the exposé a “mischievous misadventure" and said that the report appears to have been done with a mala fide intent to cause damage to the goodwill and reputation of DHFL, and has led to the erosion of shareholder value.

“Their entire approach raises serious concerns about the motivation of this so-called expose. It is necessary in public interest that if they believed in the genuineness of their issues to have given DHFL an opportunity to explain’ the facts that are in any case available in the public domain," DHFL told BSE.

DHFL also said that for the last several weeks, an anonymous note has been making the rounds with similar “defamatory and scurrilous allegations". The real intent of this exercise appears to be to destabilise the company and the market equilibrium besides preventing us from meeting the on-going obligations. “We are also concerned about the timing and the holding of the press conference before the stock market close and days before the interim budget," the company statement added.

In September 2018, there was a 60% intra-day crash in DHFL share price on the news that DSP Mutual Fund had sold non convertible debenture of DHFL at a higher yield, raising concerns over the financial condition of the home finance company.

From the beginning of the calendar year, shares of DHFL have lost 31.82%, while the benchmark index, Sensex, lost 1.32%.

As of December 2018, billionaire investor Rakesh Jhunjhunwala owned 2.46%, while Life Insurance Corporation of India has a 3.44% stake in DHFL. Mutual fund houses UTI Mutual Fund, Motilal Oswal Mutual Fund, and Reliance Mutual Fund also have exposure in DHFL.

In the December quarter, Dewan Housing’s net profit declined 37% year-on-year to 320 crore.

“Over the past quarter, the company focused on liquidity management, while growth took a back seat. It repaid 17,900 crore of borrowings over the past three months, including 10,000 crore of commercial papers. It raised 16,300 crore of borrowings, largely from portfolio sell-downs," said Motilal Oswal Securities Ltd in a note on 25 January.

According to the brokerage firm, the DHFL management said that its priority was to reduce the builder loan portfolio share to 5% of assets under management by end-FY19. “In January 2019, DHFL sold down 1,700 crore of builder loans to an FII," Motilal said.