DHFL collateral is worth just Rs 500 crore against Rs 40,000 crore lent by banks

Lenders to beleaguered Dewan Housing Finance (DHFL), which has plunged into huge losses, are a worried lot. They are now looking at the collateral or the hard securities the private mortgage lender has mortgaged to the consortium. Over two dozen banks, including private and foreign banks, have exposure of over Rs 40,000 crore in the non-banking financial company (NBFC).

The auditors recently noted that the company's ability to raise funds has substantially impaired and the business has come to a standstill because of challenges in fresh disbursements. "These developments may raise a significant doubt on the ability of the company to continue as a going concern," note auditors. In the just concluded fourth quarter (January-March ) of 2018-19, DHFL has reported a net loss of Rs 2,223 crore.

After the IL&FS debacle, this is the second instance of a financial services firm staring at a bankruptcy. The 29-odd bankers, meanwhile, are taking stock of the collateral or fixed assets that the company had mortgaged with them. They all have a joint charge of the same.

As per estimates, the value of properties would stand at around Rs 500 crore based on the year the charge was created. It could be slightly more in today's market as commercial real estate prices have been on the rise as compared to the residential market.

So, what all bankers are counting on? The biggest of all is the NAPHA property, an iconic building set up by DHFL at Kalina in Mumbai over two years ago. The value of this property in the books is at around Rs 260 crore. This 12-storey glass building with a total area of 1,44,570 square feet is a commercial building to rent out for offices. Another one - BKC property - with a total area of 18,764 square feet is valued in the books for around Rs 105 crore. In addition, the corporate office and Mumbai metro branch offices with 23,271 square feet are valued at around Rs 86 crore.

In addition, there are flats in Mumbai, offices in New Mumbai and Indore and commercial units in Karnataka. These properties will also fetch a good price in single digit.

These collateral would be triggered in an extreme case of a bankruptcy. In fact, the company has been making every effort to monetise its mortgage and loan portfolio by selling it to willing banks. The Budget 2019 encouraged banks to buy NBFC portfolios by offering an insurance cover for the first loss up to 10 per cent. DHFL has small ticket size home loan portfolio. There are doubts if there will be any takers for the wholesale book that comprises developers loan.

If lending banks agree for a restructuring, there could be a slight extension of the repayment period. However, all financial creditors should be on the same page on this decision. Banks will certainly try to avoid a bankruptcy kind of a situation as it raises the systemic risk for the financial system. Similarly, things may improve if a strategic player comes on board as promoters are willing to sell their stakes. The current valuation of the company in the stock market is less than Rs 2,000 crore. Any buyer will have to take into account all liabilities, which are close to Rs 1 lakh crore.

DHFL has already started trimming down its group's businesses to save itself. As far as the sale of non-core assets is concerned, DHFL has divested 9.15 per cent stake in Aadhar Housing for Rs 205 crore to private equity player Blackstone, 30.63 per cent in education finance  Avanse Financial to Warbug Pincus affiliate for Rs 304 crore and sale of its entire shareholding in AMC DHFL Pramerica for an undisclosed amount.

Also read: DHFL share price hits 10-year low on Q4 net loss, grim financial outlook

Also read: Indian housing lender DHFL says financial situation grim; may not survive