Gaping hole in Dhandapani’s balance sheet

MUMBAI: A Year after US hedge fund DB Zwirn acquired a significant stake in Chennai-based non-banking finance company Dhandapani Finance, it has spotted a crater in the company’s balance sheet. Since the hole is big enough to erode Dhandapani’s capital, Zwirn will now have to look at ways to either recapitalise the balance sheet or plan an exit.

Zwirn had initially bought 35% stake of Dhandapani from promoters — TN Desikan and TN Sundararajan — for Rs 12 crore. It had subsequently made an open offer for an additional 20% stake in the listed NBFC at Rs 58 a share. Zwrin currently holds a 51% stake in the NBFC, while the original promoters hold around
11% equity.

According to sources, Zwirn has now discovered a hole of Rs 80 crore in Dhandapani’s books. The NBFC had reported a net loss of Rs 31.52 crore for the quarter ended March 31, 2007. Subsequent to the announcement of the results, Soundararajan, Dhandapani

Finance managing director and one of the original promoters, had put in his papers. But the board has not yet accepted it.

On Wednesday, the Dhandapani scrip closed at Rs 45.75 up 5.05% on the BSE. When Zwirn had picked up 35% stake, it had appointed the management consultancy firm KPMG to carry out the due-diligence. Sources said that KPMG did not find anything materially amiss in the accounts of the company then. A KPMG spokesperson said, “KPMG’s work on Dhandapani Finance was carried out sometime

ago and on a confidential basis, we are not in a position to comment on the issues raised. We have every confidence that KPMG’s work was carried out appropriately.”

Despite repeated attempts, Dhandapani Finance officials did not respond to a mail from ET. Zwirn officials in Hong Kong also refused to comment.

The NBFC has over 50 branches and is focused on financing of earth moving and material handling equipment, heavy and light commercial vehicles, medical and surgical equipment, generators and general purpose machinery. It has an equity capital of Rs 5.9 crore and reserves of Rs 10.1 crore. Dhandapani Finance is a deposit-taking NBFC. Rating agency Crisil had on December rated its fixed deposit at FA+/stable. The finance company had issued 10% redeemable optionally-convertible preference shares to DB Zwirn Mauritius Trading. According to sources, the stake of the hedge fund in the NBFC will go up by an additional 10% once these shares get converted.

According to the open offer document, Zwirn had said that it will not dispose off, sell or otherwise encumber any substantial assets of Dhandapani Finance except with the prior approval of the shareholders in the succeeding two years.

The last few years have seen intense activity in the NBFC segment with a host of private equity players and multinational banks taking strategic stakes in these companies. Part of this rush is due to the fact that foreign players currently cannot takeover a private sector bank. Also, foreign banks currently get only anywhere between 2 and 4 branches a year. MNC players are, therefore, on the prowl to get their hands on any NBFC player which has some branch presence.