How HDIL MD Sarang Wadhawan's party ended

Analysts say that PMC Bank case is only going to make matters worse for HDIL and the Wadhawans. 

Sarang Wadhawan, vice-chairman and managing director of Housing Development & Infrastructure (HDIL), also known as “Sunny Dewan”, is not new to controversy. 

HDIL and Wadhawan’s name cropped up after the Reserve Bank of India (RBI) recently restricted the operations of the Punjab and Maharashtra Co-operative (PMC) Bank. PMC Bank lent Rs 6,500 crore to HDIL and the total loans to the company constituted 73 per cent of the bank’s total book. 

PMC Bank Managing Director Joy Thomas confessed to the RBI last month that the management was cooking books and hiding crucial information on HDIL's debt, a non-performing asset for the bank, from the banking regulator. Loans to HDIL accounted for 73 per cent of the bank's loan book. 

Wadhawan and his father, Rakesh Kumar Wadhawan, were arrested last week after the Economic Offences Wing of the Mumbai police registered a first information report against PMC Bank officials, HDIL group entities and its promoters. 

Wadhawan is a popular figure in Mumbai’s party circles. He counts many Bollywood celebrities among his close friends. But it was only after the company’s initial public issue (IPO) in mid-2007 that raised Rs 1,485 crore that Wadhawan became popular in the business media.  

In early 2013, Wadhawan had to do a lot of firefighting when the company’s stock crashed after he sold 1 per cent in the company  for Rs 57 crore to meet some repayment dues for land bought in 2010. 

Though the company became a big player in slum redevelopment projects in Mumbai after winning the Mumbai International Airport redevelopment project in 2007, the slowdown in the real estate market cast a pall on the company’s fortunes, especially after 2014. 

Its sales fell 8.45 per cent and profits sank by 16.59 per cent CAGR during FY15-FY19. Since the beginning of the year, the company’s stock has fallen 87 per cent. 

Besides the downturn in real estate, HDIL also faced its own peculiar problems: delays in getting cash from buyers, lower launches, delays in the Mumbai airport such as in the resettlement it was doing for slum-dwellers, and high debt. 

Poor cash collections were at the centre of HDIL’s problems, said the analysts tracking the company, adding that even in selling land parcels (called FSI sales), the company faced the same problem as payments are linked to approvals. 

The company was selling land parcels in various parts of the city in the last two years to generate cash flows and reduce debt. But the delay in approvals by the municipal authorities and the overall slowdown in the market shrank cash generation. The company had a debt of around Rs 2,000 crore in FY19. 

Mumbai real estate, the most expensive in the country, has seen one of the worst slowdowns since 2014, leading to delays in projects and unsold inventory piling up. 

Prices in Mumbai have not moved up since 2014. As sales came down and debt mounted, companies like HDIL have sold assets to shore up liquidity and reduce debt. 

Developers have also been hit hard by development such as demonetisation, the introduction of GST, and the provisions of the Real Estate (Regulation & Development) Act. 

Analysts say that the PMC case is only going to make matters worse for HDIL and the Wadhawans.