Dewan Housing crisis drags Jhunjhunwala down

The liquidity crisis at Dewan Housing Finance Corporation Limited (DHFL) has dented the fortunes of ace investor Rakesh Jhunjhunwala, who increased his stake in the troubled company in the March 2019 quarter (Q4FY19). 

Savvy investors, at times, look up to their ‘investment gurus’ for taking a call on the broad market direction and even ape their stock calls. A decision, if proven correct over time, can see their stock and portfolio value surge manifold.

But then, even market gurus, sometimes, falter.

The liquidity crisis at Dewan Housing Finance Corporation Limited (DHFL) has dented the fortunes of ace investor Rakesh Jhunjhunwala, who increased his stake in the troubled company in the March 2019 quarter (Q4FY19). 

As per the shareholding pattern mined from ACE Equity, Rakesh Jhunjhunwala increased his stake in DHFL to by 73 basis points (bps) 3.19 per cent as at the end of the March 2019 quarter -- valued at Rs 150.25 crore --  as per DHFL’s closing price on March 29, which was the last trading day of financial year 2018-19 (FY19).

That apart, Life Insurance Corporation of India has also suffered a blow to its investment in the company. The life insurer held 3.44 per cent stake in DHFL as at the end of March 2019, valued at Rs 162.2 crore.

Assuming both Jhunjhunwala and LIC still have their holding intact in DHFL, the value of their holding in the company has dropped by nearly 38 per cent since March 2019-end, with the DHFL's stock plummeting from Rs 150 levels on March 29 to Rs 93 levels as on June 6. Based on Thursday's closing price, Jhunjhunwala's shares in DHFL are valued at Rs 94 crore and of that LIC at Rs 101.4 crore on the NSE.

Both Jhunjhunwala and LIC are the biggest public shareholders in DHFL with a holding above 3 per cent as per March 2019 quarter shareholding pattern, ACE Equity data show.

Meanwhile, the recent default of around Rs 1,000 crore by Dewan Housing Finance (DHFL) on interest payment to its debenture-holders can accentuate a contagion risk and expose Rs 1-lakh crore in borrowing to risk of default / haircuts, says a recent report by global research and brokerage firm CLSA. 

The development, it says, can have a far-reaching impact on the financial sector with the fortunes of select non-bank finance companies (NBFCs) / housing finance companies (HFC), real estate, housing, auto and small-and-medium enterprises (SMEs) bearing the brunt.

Dewan Housing Finance Company (Dewan HFC), according to CLSA’s estimates, has Rs 1-lakh crore in borrowing with banks having funded half of this borrowed amount, followed by insurers and mutual funds. Nearly 10 per cent of this borrowing (Rs 10,000 crore) is through deposits. 

However, some analysts do see a silver lining amid this. G Chokkalingam, founder and managing director at Equinomics Research, for instance, believes that the non-bank finance companies (NFBC) and the housing finance sector will be resolved over the next few quarters if there is an overall economic buoyancy.

“This is a liquidity crisis and not an asset crisis and one must be able to distinguish between the issues troubling the public sector banks (PSBs) -- which is the non-performing assets issue -- and the liquidity crisis, which is bothering the housing finance companies. In case of the latter, asset sales can come to the rescue and help the HFCs come out of troubled waters,” he says.

Analysts at CLSA, too, echo the same view as regards DHFL. Going ahead, their analysts believe asset sales to be the key to prevent defaults by DHFL, as expected repayments over the next two months are higher at Rs 6,000 crore versus expected collections of Rs 4,000 crore.