Ind auditor finds no major irregularities in DHFL books

Mumbai: An independent auditor has said it did not find much substance in the charges by a news portal that the promoters of Dewan Housing Finance Ltd (DHFL) had engaged in major irregularities, an assessment that could pave the way for the primary owners to sell their stake in the home financier.

The TP Ostwal & Associates’ report, which should quicken the process of stake dilution, boosted DHFL shares that climbed as much as 20 per cent on the Bombay Stock Exchange on Wednesday. Shares closed 11.04 per cent higher at Rs 148.80 on BSE.

The company has not promoted any of the alleged 26 “shell” companies that are borrowers. Further, it does not have any directors in common, including members from the promoter group, with any of these alleged “shell” companies, the report said.


It also added that the company or promoters do not have any shareholding in these entities, nor are these entities shareholders of the company. Accordingly, there are no indications to confirm the allegations that the company has created shell companies to divert funds.

“(Potential) buyers will get the confidence that there is no corporate governance issue,” said Digant Haria, analyst, Antique Broking. “Now, the stake sale will proceed at a faster pace.”

The auditor, however, said that monitoring of the end-use of loans by some borrowers was inadequate.

“Although the company is required to monitor post-disbursal end use of funds by the borrowers, our examination indicates the monitoring in respect of 15 borrowers, (with) approximately loans amounting to Rs 7,485 crore, is significantly inadequate,” the auditor said in the report.

On allegations in respect of loans worth Rs 14,282 crore to 45 borrowercompanies that are alleged to be part of Sahana group and Wadhawan group, the auditor did not find merit in the charges. The report said that loans were disbursed during the review period to only 10 entities of the alleged 45 entities amounting to Rs 4,715 crore, of which Rs 1,640 crore have been repaid by the borrowers up to December 31, 2018.

The auditor also found allegations of political considerations in lending decisions and timing to be baseless and without merit, saying that there was no link between loans sanctioned and the timing of the elections.

“All of such loans were, in fact, not sanctioned before or during either the Gujarat (December 2017) or Karnataka (May 2018) state elections,” the report said.

However, the report said loans of Rs 2,000 crore to Notion Real Estate Private Limited, Earleen Real Estate Developers Private Limited, Prashul Real Estate Private Limited, and Edweena Real Estate Private Limited as project loans could have been used to buy shares of Darshan Developers, aggregating to Rs 1,424.16 crore.

Sameer Kalra, founder of Target Investing, said any bounce back in the stock should be used as an opportunity to exit. Target Investing has a 'sell' rating on the stock.

“Though allegations of Cobrapost have not been proven correct which might help a positive sentiment towards company but other findings raised many concerns on the business front,” said Kalra. “We see any bounce as good exit point for minority investors,” added Kalra.