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PSU banks rally after Piramal Enterprises acquires DHFL for Rs 34,250 cr

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The Nifty PSU Bank rose 2.54% to 2,459.15, climbing 4.31% in three straight sessions.

Canara Bank (up 3.85%), Bank of India (up 3.77%), Indian Bank (up 3.61%), Jammu & Kashmir Bank (up 3.14%), PNB (up 3.07%), UCO Bank (up 2.65%), Bank of Baroda (up 2.58%), Bank of Maharashtra (up 2.47%), Indian Overseas Bank (up 2.46%), Union Bank of India (up 2.29%), Central Bank of India (up 1.91%), Punjab & Sind Bank (up 1.76%) and State Bank of India (up 1.75%) advanced.

Piramal Group on Wednesday announced that it has completed the acquisition of housing finance firm Dewan Housing Finance Corporation (DHFL) and a total consideration of Rs 34,250 crore has been paid for the same.

DHFL entered insolvency proceedings at National Company Law Tribunal (NCLT) in 2019 after going bankrupt with more than Rs 90,000 crore in debt to various lenders, including banks, mutual funds and individual investors who kept fixed deposits with the company. The DHFL lenders had classified the account as a fraud on alleged fund diversion by promoters Kapil Wadhawan and his brother Dheeraj Wadhawan.

Creditors led by SBI had admitted claims worth over Rs 87,000 crore. According to reports, SBI had exposure of Rs 7,267 crore to Dewan Housing Finance. Bank of India claimed Rs 4,125 crore while Union Bank of India had an exposure of Rs 3,605 crore.

In January 2021, Piramal Capital and Housing Finance (PCHFL), a subsidiary of Piramal Enterprises, had won a bid for acquiring DHFL. Piramal made Rs 37,250-crore bid to acquire the housing finance company.

In January 2021, 94% of the creditors of DHFL voted in favor of Piramal's resolution plan. Approvals were also obtained from the RBI, the Competition Commission of India (CCI) and NCLT for the completion of this transaction.

As a part of the process, PCHFL will merge with DHFL. The merged entity will be 100% owned by Piramal Enterprises.

The creditors of DHFL (including FD holders) would recover an aggregate amount of approximately Rs 38,000 crore from the resolution process of DHFL. This amount comprises of about Rs 34,250 crore to be paid by PCHFL as a combination of cash and non-convertible debentures and an amount of about Rs 3,800 crore, which is the entitlement of creditors (as per the resolution plan), from the cash balance available with DHFL.

There were about 70,000 creditors of DHFL and most of them are recovering nearly 46% of their pending dues through the successful completion of resolution process.

The total consideration paid by the Piramal Group of about Rs 34,250 crore at the completion of the acquisition, includes an upfront cash component of Rs 14,700 crore and issuance of debt instruments of Rs 19,550 crore (10-year NCDs at 6.75% p.a. on a half-yearly basis).

The acquisition marks the first successful resolution under the IBC route (Insolvency and Bankruptcy Code, 2016) in the financial services sector. In value terms, the transaction is among the largest resolutions till date, setting the precedent for future resolutions in the sector, Piramal Group added.

The merged entity combines Piramal's financial strength, core values and institutional credibility with DHFL's geographic footprint and distribution network of 301 branches and 2,338 employees catering to about 1 million lifetime customers across 24 states, making it one of the leading housing finance companies in the country.

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(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

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First Published: Wed, September 29 2021. 12:38 IST