DHFL bidders turn jittery as auditors expose holes in company's books

The new management, led by RBI-appointed administrator, has said till forensic audits and probes by CBI and ED are over, it won't be able to present a clear view of financial data of the company

The potential bidders of bankrupt housing finance firm Dewan Housing Finance Corporation (DHFL) are a nervous lot. The auditor’s report for 2019-20 (FY20) has warned of gaping holes in the company’s books.

The new management, led by a Reserve Bank of India appointed administrator, has indicated it will not be able to present a clear view of the financial data of the company till the forensic audits and investigation by the Central Bureau of Investigation and the Enforcement Directorate are not over.

On February 17, DHFL lenders had received expressions of interest from 24 companies for DHFL’s three separate loan portfolios. KKR, Bain Capital, Asset Reconstruction Company (India), and Oaktree had bid for all three portfolios. The rest had bid for the retail portfolio and the slum redevelopment loan portfolio.

“We have to wait for a clearer picture to emerge since the company is facing a fraud investigation. It will be difficult to do due diligence in the absence of authentic data," said one of the bidders.

Indian lenders and operational creditors have made claims worth Rs 87,000 crore against the company, while fixed depositors are claiming an additional Rs 4,500 crore.

The auditor’s report for FY20 said the wholesale loan portfolio aggregating to Rs 49,585 crore (pursuant to classification of this portfolio to be held for sale in the previous year ended March 31, 2019) has been valued at Rs 30,732 crore as of March 31, with the fair value loss at Rs 18,853 crore.

Of this, the fair value loss aggregating to Rs 5,986 crore has been accounted up to December 31, 2019. The balance loss of Rs 12,867 crore has been charged to the statement of profit and loss for the quarter ended March 31, 2020.

The basis of valuation of the portfolio changed during the current quarter ended March 31 by discounting the cash flow assessed by the external valuer. This was against the contractual cash flow used by the erstwhile management in the previous year and during the nine months ended December 31, 2019. Further, as an outcome of the valuation exercise to be completed during the insolvency process, this valuation may undergo further change, said the auditor.

“The recoverability or otherwise of these loans is yet to be ascertained. Hence, the appropriate provision has been made as a prudent measure on the fair valuation method, according to Ind AS provisions,” said the auditor.

The new management observed that an amount of Rs 3,019 crore has not been reconciled and cannot be mapped to any security against which these funds were disbursed in the past, added the auditor.

The process of identifying and mapping this amount to any scheme under which it was disbursed and further steps to be taken basis the findings are being addressed as part of the insolvency process. The same is underway and the transaction audit report may reveal further details, said the auditor.

The company is still calculating the data of retail loans due to data deficiencies, the company said in its annual results while announcing a loss of Rs 13,612 crore for FY20.