Crisis-hit DHFL makes partial payment of Rs 150 crore for commercial papers

Says will pay the balance in next two days once cash position improves

Crisis-hit mortgage lender Dewan Housing Finance (DHFL) made partial payment of Rs 150 crore for its unsecured commercial papers (CPs) that matured on Tuesday. The housing finance company (HFC) managed to settle 40 per cent of the Rs 375 crore that was up for maturity.

In its exchange note, the company said that it would pay the ‘default’ amount of Rs 225 crore over the next couple of days once the surplus cash flow position improves.

While it couldn’t be ascertained which investors managed to get their dues, data showed that mutual funds (MFs) had Rs 190 crore exposure to the CPs that matured on Tuesday. At the end of April, schemes belonging to DSP MF had exposures to these CPs. Also, L&T Money Market Fund and IDBI Ultra Short Term fund held these papers. “Some of the schemes have already taken 100 per cent mark down on their exposure to DHFL CPs, so the impact on the schemes’ net asset value may vary,” said a fund manager.

The company informed exchanges that 12 investors had exposures to these CPs.

Re-iterating its asset monetisation plans, DHFL said, “The company is already in the process of selling down its loan assets including wholesale project loans to make good all its obligations and maintain its 100 per cent commitment to all its creditors as it has done since the liquidity crisis started in September 2018.”

Further, the company has sold off its stake in two of its subsidiaries – Aadhar Housing Finance and Avanse Financial Services – to improve its liquidity position.

DHFL highlighted that even though its CPs have faced sharp rating downgrades, it has demonstrated its ability to honour its debt commitments. “Pursuant to the downgrade by rating agencies expecting a default for the CPs much before they had fallen due, the mutual funds had already taken a 100 per cent markdown on their CP investments. However, even post these downgrades, the company continued to meet its obligations of CP holders and made good a total of Rs 375 crore of CPs before today”, DHFL said.

Earlier, the credit rating agencies had downgraded DHFL’s CPs worth Rs 850 crore to default grade after it had missed on its interest obligations related to its debentures. However, it paid off the interest obligations within the seven-day cure period.

Things started going downhill for the mortgage lender when IL&FS in September 2018 defaulted on its debt obligations because of huge asset liability mismatch and fear crept in the minds of investors that housing finance companies such as DHFL and may also default on their debt obligations. Shares of DHFL tanked, despite the management ensuring everything was all right and that it was meeting all debt obligations.

Because of liquidity constraints after the IL&FS default, disbursal of loans by mortgage lenders fell drastically. Disbursal of DHFL in Q3 of FY19 saw a 95 per cent decline as it disbursed merely Rs 510 crore. In Q4, the situation worsened for DHFL with allegations levelled against the promoters of the company of siphoning off funds by an online portal. This prompted the company to commission an internal audit by an independent auditor.

L&T set to control Mindtree, increases stake to 51%, says report

In March, Mindtree ditched a plan to buy back shares in a bid to counter L&T’s hostile takeover approach

Larsen and Toubro Ltd (L&T) has acquired a controlling stake in IT services company Mindtree Ltd, CNBC TV18 reported citing sources.

The report comes within months of Mindtree rejecting a hostile takeover bid from L&T, saying that the plan was of no value for the firm or its shareholders.

L&T’s hostile bid to acquire a controlling stake in Mindtree is the first in India’s software services industry and is rare in India’s corporate sector, where unsolicited suitors are usually deterred by founders with large shareholding.

The Mumbai-based construction giant increased its stake in Mindtree to 51 per cent, the channel reported, adding L&T got over 21 per cent stake through open offer so far.

In March, L&T bought a fifth of Mindtree from coffee baron V G Siddhartha and companies related to him for Rs 32.69 billion ($474.73 million) and said it planned to raise its stake to 66 per cent.

As of March 19, Mindtree founders, including Executive Chairman Krishnakumar Natarajan and Chief Executive Rostow Ravanan owned a combined 13.3 per cent stake in the company.

Since March, L&T kept buying stake in Mindtree from its promoters and through an ongoing open offer. Mint reported Singapore-based Nalanda Capital on Monday sold its entire 10.61 per cent stake in the IT services firm to L&T in the offer.

Mindtree was not immediately available to comment, while L&T declined to comment on the matter.

Bank NPAs likely to drop to 8% by March 2020, says CRISIL report

State-owned banks, which account for 80 per cent of the NPAs in the banking system, will see their gross NPAs shrinking 400 bps to 10.6 per cent by March 2020, down from 14.6 per cent in March 2018

On account of higher recoveries from big-ticket stressed assets and slow accretion of fresh non-performing assets (NPAs), the asset quality of banks will improve significantly, with gross NPAs shrinking 350 basis points (bps) to 8 per cent by March 2020, stated a report by credit rating agency Crisil.

In March 2018, NPAs in the banking sector was at 11.5 per cent and then it gradually came down to 9.3 per cent in March 2019.

State-owned banks, which account for 80 per cent of the NPAs in the banking system, will see their gross NPAs shrinking 400 bps to 10.6 per cent by March 2020, down from 14.6 per cent in March 2018.

“In FY19, write-offs, coupled with recoveries under the IBC in key large stressed assets, played a critical role in the reduction of NPAs. Further, after a gap of six years, the pace of NPA reduction is estimated to have overtaken that of fresh slippages for the banking system in FY19. Private Banks, which have had fewer asset quality issues, should also witness an improvement in portfolio performance”, said Krishnan Sitaraman, senior director, Crisil Ratings.

According to the report by CRISIL, the rate of accretion of fresh NPAs halved in FY19 to 3.7 per cent, compared to 7.4 per cent in the previous financial year and is expected to drop to 3.2 per cent in FY20. This because banks have already recognised Rs 17 trillion worth of stressed assets as NPAs since FY16 mainly due to the Reserve Bank of India’s (RBI) stringent norms in NPA recognition and asset quality review.

Crisil expects a pick-up in recoveries FY 20 from large NPA accounts, especially from those which are under the insolvency process. “This is assuming the bulk of the pending cases in the National Company Law Tribunal (NCLT) would be resolved with higher recovery rates and faster resolution times than that hitherto seen in the country”, the report said.

Income tax trouble for Cognizant; HC upholds Rs 2,500 crore demand

The case stems from the demand for payment of tax at the rate of 15% on the remittance of Rs 19,415 crore to its non-resident shareholders in the US and Mauritius, against buyback of 94 lakh of its equity shares in May 2016.

A single judge bench of the Madras High Court on Tuesday upheld the tax demand of over `2,500 crore as dividend distribution tax (DDT) raised by the income-tax department on the IT company Cognizant Technology Solutions (CTS) on account of share buy back undertaken by it.

The case stems from the demand for payment of tax at the rate of 15% on the remittance of Rs 19,415 crore to its non-resident shareholders in the US and Mauritius, against buyback of 94 lakh of its equity shares in May 2016.

Rejecting the appeal by the company against the department’s demand as not maintainable at this point, Justice K Kalyanasundaram directed the company to exhaust all other available legal remedies, including moving the appellate authority, before approaching the high court.

The court had in April 2018, granted interim relief to CTS by staying the operation of the demand notice on the condition that it should deposit 15% of the disputed amount in a suspense account with the department while providing security for the rest of the amount.

The company, however, submitted that, it had remitted capital gains tax of `898.01 crore to the I-T department by way of deduction of tax at source for having remitted `19,415 crore to its non-resident shareholders, through a scheme approved by high court in 2016 for buyback of shares. In these circumstances, the company argued that it was not liable to pay any more tax.

The department, however, argued that the buy-back of shares under Section 391 of the Indian Companies Act is nothing but the distribution of accumulated profit and it has to be treated as dividend under Section 2(22)(d) of the Act and dividend distribution tax at 15% is required to be paid by the company under Section 115O of the Act. Though the petitioner deposited a sum of `898.01 crore by way of withholding tax, it has not deposited the remaining tax to the extent of Rs 2,500 crore.

The department also refuted the argument submitting that the company had framed a scheme for buyback because the number of shares was more than the limit allowed under Section 77A of the Companies Act 1956. If the shares had been bought under Section 77A, then the company should have paid tax at the rate of 20%.

The I-T department has also alleged that Cognizant had evaded DDT on some transactions the Indian entity has made while buying shares of the company from the Mauritius and US companies of Cognizant. These companies held 54% and 46% shares, respectively, in Cognizant Technology Solutions India and the shares were sold at an inflated valuation, it alleged. As per the department, DDT has to be paid on any distribution, or reduction of capital, to the extent of accumulated profits defined as dividends.

BSNL, MTNL may get revival package as govt steps in to ease cash crunch

Both the firms have been facing severe financial crisis amid hyper-competition in the sector.

BSNL and MTNL cite allotment of 4G spectrum as the prerequisite to survive the hyper-competition, led by Reliance Jio.

The government is likely to announce a revival package for state-run telecom firms BSNLand MTNL in the next few days as a severe cash crunch has again jeopardised timely payment of salaries for June.

According to sources, cabinet secretary PK Sinha on Tuesday held a more than an hour-long meeting with department of telecommunications (DoT) officials, including secretary Aruna Sundararajan, to chart out a revival plan. Interestingly, the top bosses of BSNL and MTNL were not present in the meeting, the sources added.

The sources further said apart from the proposals submitted by the companies, the government is exploring other options, which will give long-term stability to the telcos. The revival plan may include some harsh measures relating to cost-cutting, primarily on the salary front. Accountability will be fixed for every employee, who have to either perform or perish.

Both the firms have been facing severe financial crisis amid hyper-competition in the sector. The companies even failed to pay February salaries to their around 2-lakh-strong combined workforce on time.

It must be mentioned that the Telecom Regulatory Authority of India (Trai) is already looking at the proposal of 4G spectrum allotment to these firms without auction. The DoT had reached out to Trai as it was not sure if spectrum can be allocated by any other mechanism to the state-run firms in the aftermath of 2012 Supreme Court order. The companies have offered to give half the amount of 4G spectrum upfront by way of issuing preferential equity to the government and rest of the amount in installments.

BSNL and MTNL cite allotment of 4G spectrum as the prerequisite to survive the hyper-competition, led by Reliance Jio. All the remaining private operators in the sector are spending huge amounts of capital to strengthen 4G infrastructure.

Another important decision around the revival is to reduce the staff cost. Currently, over 60% of BSNL’s revenues go into paying salaries whereas for MTNL, over 90% revenues are consumed in paying staff. As a majority of the employees are over 50 years of age, the voluntary retirement scheme will be beneficial in reducing the staff cost. Sources said it might be made mandatory to everybody over 50, if the desired number of employees does not come forward to take it.

On land monetisation, the government is considering leasing out properties as most of the land assets are not owned by the companies.