Saturday, October 26, 2019

The case of Dewan Housing is an opportunity to shine light on corporate India

If you thought that mortgaging the same asset to different lenders was what you only saw with small-time fraudsters and in movies, wait till you read about the latest twist in the case of Dewan Housing Financing Limited (DHFL). 

The company is reeling from a $12 bn pile of debt and is undergoing restructuring efforts, failing which it will have go into bankruptcy, with its ripple-effects across the financial markets.

In this context, Livemint reports about the latest developments in the already unsavoury troubles facing DHFL.
The Bombay High Court is scratching its head and wondering if Dewan securitized — that is, sold to a separate entity — assets that it had pledged to another set of investors to obtain loans. Now, the court wants the beleaguered firm to produce, under oath, a list of assets it repackaged and sold within the last year. This imbroglio has the potential to bring India’s securitization market to a standstill.
As if this was not enough,
A special review of Dewan by KPMG is still in a draft form. But the parts leaked to the media Wednesday raise damaging questions. The auditor says that $2 billion was lent to 25 borrowers with little real business or assets, and that “such entities may be working closely" with Dewan without qualifying as related parties. 
The question that will get asked in the days ahead in a vociferous manner is this. What were the regulators, on both the capital markets and banking sides, doing? 

What will not, unfortunately, get highlighted is the rot within India's corporate sector, where at the slightest opportunity subverting the rules of the game has become passe! 

The blame will get evenly distributed between the unscrupulous promoters and the government. Never mind this is only the latest in the series, the opinion makers will not think it still not appropriate enough to introspect how pervasive such practices are in corporate India.

Update 1 (21.11.2019)

More details, in a balanced apportionment of the blame, on the DHFL story here.

These cases are a matter of great concern about the country's financial market regulation, especially its enforcement, as India becomes increasingly financialised. The practice of mortgaging the same asset to multiple creditors is a case in point. It is even more disturbing since in this case, being collateralised debenture securities on housing loans, it had regulation at both sides - banking (NHB) and securities market (SEBI). The failings of Debenture Trustees, credit rating agencies, auditors etc too are egregious. 

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