DHFL auditors raise red flags over financial numbers, loans

The auditors also said that the company is in the process of monetising its assets and has submitted a draft resolution plan to the consortium of bankers for restructuring its borrowings and also there have been discussions for stake sale by the promoters to a strategic partner with further equity infusion.

Illustration: Uttam Ghosh/Rediff.com

Flagging concerns over financial numbers of housing finance company DHFL, auditors of the debt-ridden firm said there were irregularities in granting of certain loans as well.

The auditors had raised several red flags around the audited numbers of the fourth quarter ended March 2019.

While stating that they were unable to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion, the auditors put out several qualifications and disclaimers.

“We were not able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion on the statement," said DHFL's auditors Deloitte Haskin & Sells and Chaturvedi & Shah said.

The auditors had made the remarks in their independent report which is part of the filing submitted to the exchanges on Monday.

Both auditors pointed that there were significant deficiencies in the grant and rollover of unsecured borrowings at DHFL and that there had also been other irregularities in the granting of certain loans.

"All these developments raise a significant doubt on the ability of the company to continue as a going concern and therefore it may be unable to realise its assets and discharge its liabilities including potential liabilities in the normal course of business," they said.

The auditors also said that the company is in the process of monetising its assets and has submitted a draft resolution plan to the consortium of bankers for restructuring its borrowings and also there have been discussions for stake sale by the promoters to a strategic partner with further equity infusion.

"The ability of the company to continue as a going concern inter alia is dependent upon its ability to monetise its assets, secure funding from the bankers or investors, restructure its liabilities and recommence its operations, which are not wholly within control of the company," they said.

The auditors observed that various regulatory authorities or lenders are currently carrying out their own investigation and they may make a determination on whether any fraud or any other non-compliance or illegalities have occurred in relation to the allegations.

"We are therefore unable to determine if these allegations would have an impact on the statement including whether any adjustments to the carrying value of the loans granted, any restatement, related parties and other disclosures and compliances are required," they added.

The development by the auditing firms comes at a time when the big four PwC, Deloitte, EY and KPMG, along with rating agencies ICRA and CARE face criticism from authorities for failing to uncover, or flag the issues at IL&FS in a timely manner.

Last month, Reliance Infrastructure's auditors raised similar red flags around the financials.

Observations made by audit firms are going to have its impact on resolution plan and sale of stake to investors.

DHFL on Monday said it expects an in-principle approval from its lenders to its the resolution plan by month-end.

The company said that it was in the process of submitting a resolution plan to the lenders who are expected to give in-principle approval by month-end.

It further said that DHFL has received non-binding indicative term sheets as part of the proposed corporate restructuring of the company and any proposals approved will constitute a part of the resolution plan.

Promoters of mortgage lender are in talks with private equity firms and are expecting to garner $ 1 billion (about Rs 6,900 crore) by selling nearly 50 per cent of their holdings, sources said.

The Wadhawan family, the promoters of the company, currently holds close to 40 per cent stake in the company.

Private equity firms Lone Star, AION Capital and KKR are in talks with promoters for a strategic stake, sources said.

It further said that the company is undergoing substantial financial stress since the second half of the last financial year.