DHFL's pre-tax loss narrows sequentially to Rs 167.80 crore in Q3

The company reported a net profit of Rs 934.35 crore in Q3FY20 due to tax adjustments; no provision for interest on borrowings post insolvency proceedings

Troubled mortgage lender Dewan Housing Finance (DHFL), which is under insolvency proceedings, has reported a pre-tax loss of Rs 167.80 crore in the third quarter (Q3) of 2019-20 (FY20), compared to a pre-tax profit of Rs 471.5 crore in the year-ago period. In the September quarter, the company had reported a pre-tax loss of Rs 7,584.43 crore.

However, the company has reported a net profit of Rs 934.35 crore in the quarter ended December 2019 (Q3FY20), compared to a net profit of Rs 313.6 crore in the year-ago period on account of a tax adjustment to the tune of Rs 1,973 crore for the first nine months of FY20.

The company, however, said it has not provided for interest of Rs 527.62 crore on borrowings since insolvency commencement date based on the opinion from legal advisors.

“Under the insolvency and bankruptcy code, the treatment of creditors under the resolution plan is according to debts due as on the insolvency commencement date and therefore, no interest is accrued and payable after this date. If the interest was accrued on borrowings, the profit for the quarter and nine months would have been lower by Rs 392.39 crore,” said the company.

The interest income of the lender declined 28 per cent to Rs 2,384.12 crore in Q3FY20, compared to Rs 3314.49 crore in Q3 of 2018-19. Similarly, income of the company dropped 26.8 per cent to Rs 2,436.90 in Q3FY20, compared to Rs 3,331.93 crore in the year-ago period.

The company has said its wholesale loan portfolio aggregating to Rs 48,347.57 crore has been ‘fair valued’, based on internal valuations at Rs 42,361.51 crore, thereby resulting in a fair value loss aggregating to Rs 5,986.06 crore.

Of the total fair value loss of Rs 5,986 crore, Rs 4,852.06 crore has been accounted up to September 30, 2019, and balance loss of Rs 1,133.99  crore has been charged to the statement of profit and loss for the quarter ended December 31, 2019.

“The recoverability or otherwise of these loans is yet to be ascertained and hence, the appropriate provision has been made as a prudent measure,” the company said in an exchange filing.

The auditors of the company have pointed out that with the company incurring losses to the tune of Rs 6,089.12 crore during the nine months ended December 2019, the net worth has eroded substantially.

The auditors have also expressed that there exists a mismatch to the extent of Rs 3,018 crore that is yet to identified and mapped to individual parties and the underlying securities available, if any, out of the available surplus security cover.

Also, investigations relating to financial irregularities are ongoing. The Serious Fraud Investigation Office and the Enforcement Directorate are investigating the matter.

“The present management believes that adjustments of the impact of these matters on the financial results, including with regard to any adjustments to the carrying values of the loans, restatement of receivables/payables, related parties and other disclosures and compliances, as applicable, can be made only when the same becomes known in definitive terms, following the conclusion of the said investigations together with the outcome of the ongoing transaction audits performed by independent
agencies/firms appointed by the administrator,” said the company.

DHFL became the first financial services company to be referred to the National Company Law Tribunal after the government amended the insolvency laws. Prior to that, the Reserve Bank of India had superseded the DHFL board and appointed R Subramaniakumar as administrator.

The administrator of DHFL has received claims to the tune of Rs 86,035 crore. Also, as many as 24 entities have shown interest in buying assets of the beleaguered mortgage lender.