Piramal’s DHFL bid to cover up its financial stress?

New Delhi, Jan 4 : As the race for the failed Dewan Housing Finance Corporation Ltd. (DHFL) is coming to an end, banking industry sources claim that the likely winner, Piramal is interested in its merger only to cover up its struggling financial services business.
DHFL has a balance sheet of Rs. 80,000 crore. The two highest bidders for DHFL are Oaktree Capital and Piramal. The Committee of Creditors (CoC) is to choose one of the two but as per early indications even though Oaktree has put the highest bid, Piramal is likely to clinch the deal.
“The merger helps mask stress in Piramal’s wholesale book through consolidation,” informed sources in the housing sector said. However, sources said the deal “effectively, will be a bailout of Piramal Capital that helps banks who have exposure to both Piramal and DHFL, ever-green their exposure in the combined company in exchange for the large haircut they are taking of their DHFL exposure.” It is not very different than the strategy that has been taken to tackle banking Non-Performing Assets (NPA) through Public Sector Undertaking (PSU) bank mergers, sources said.
Ninety per cent of Piramal’s financial services business is wholesale lending. A large majority of loan book is Real Estate (RE) developer loans which will require significant write-off, similar to DHFL wholesale loans, sources said.
There is delayed recognition of stress and therefore the balance sheet is not adequately provided for. Sources told IANS that Piramal is buying DHFL to recycle DHFL retail cash flows to service their huge debt against RE developer loans.