DHFL gets Sebi nod for exiting MF arm, sell its stake to JV partner

As per regulatory norms, fund house will have to give load-free exit window to investors; expets advise staying put in order to look for recovery

Debt-laden Dewan Housing Finance Corporation (DHFL) has received approval from the Securities and Exchange Board of India (Sebi) to exit its mutual fund (MF) business DHFL Pramerica MF, by selling its 50 per cent stake to its joint-venture partner Prudential Financial. 
 
"We are happy to receive the final approval from Sebi. We now need to complete a few more formalities, including giving a load-free exit window to investors, in line with the Sebi requirement, for change in control and other fundamental attribute changes," said Ajit Menon, chief executive officer of DHFL Pramerica.
 
Sebi norms require a fund house to give an exit option to unitholders without any exit load in case of any change in fundamental attributes of a scheme or trust, or any other change affecting the interest of unitholders.
 
"In schemes where the net asset value has been impacted, it would make sense for investors to stay put and look for recovery," said Amol Joshi, founder of Plan Rupee Investment Services.
 
At the end of the March quarter, the fund house’s average assets stood at Rs 7,627 crore. The deal is expected to be closed by July-end or early August.  “After the changes, we will be owned 100 per cent by Prudential Financial Inc US, and a part of their global investment management business, PGIM. It is the 10th largest asset manager with a 140-year old legacy,” Menon added.
 
After falling as much as 9 per cent in early trade on Wednesday, DHFL shares ended 6 per cent higher at Rs 80.
 
The fund house had earlier decided to merge some of its schemes that had seen sharp erosion in asset size following the IL&FS crisis. As a result of this erosion, these schemes were left with concentrated exposures to their sponsor company DHFL’s illiquid debt papers. The MF players with exposures to debt papers of DHFL had to take sharp markdowns on their exposures, after rating agencies downgraded the firm’s debt instruments to ‘default’ in early June. The rating action was triggered by the housing finance company’s delay in making payments, which it settled subsequently.
 
On Tuesday, DHFL was unable to make full payment on its maturing commercial papers. It made partial payment of Rs 150 crore on a proportionate basis, while assured that the balance Rs 225 crore will be paid to investors in next two days.