Not confident of housing finance company’s ability to continue as going concern.
Independent auditors to Dewan Housing Finance expressed uncertainty over the company’s ability to continue as a going concern, according to notes accompanying the housing finance company’s audited results for the previous quarter released late on Monday.
Auditors stated they were not confident of the company’s ability to restart operations and extinguish liabilities in the absence of evidence to accompany the company’s several claims of remedial actions and in view of downgrade in its credit rating to ‘default grade’, which could impair its ability to raise or generate funds to repay obligations.
“The ability of the company to continue as a going concern, among other things, is dependent upon its ability to monetise its assets, secure funding from the bankers or investors, restructure its liabilities and recommence its operations, which are not wholly within control of the company,” the auditors observed as part their comments.
The company had recently stated that it is in discussions for stake sale by the promoters to a strategic partner with further equity infusion.
DHFL met with the consortium of bankers on July 1, who have since signed an inter-creditor agreement (ICA) to resolve the account. The company is expected to formally present its proposed resolution proposal to the banks and to bondholders this week, DHFL indicated to FE, wherein the bankers agreed to enter into an ICA for a potential restructuring of the company’s liabilities. In view thereof, the requirements in respect of creation of debenture redemption reserve and the corresponding deposit in liquid assets shall be assessed upon conclusion of the restructuring plan.
The auditors — Chaturvedi & Shah LLP and Deloitte Haskins & Sells LLP — raised doubts over whether DHFL could realise its assets and discharge its current and potential liabilities in the normal course of business, accompanied by disclaimers citing they were “not able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion on the statement”.
Earlier this month, the housing financier reported a net loss of Rs 2,223 crore for the quarter ended March, against a net profit of `134.4 crore a year ago. The announcement was deferred from June 29, citing unavailability of the management concerned. The board approved the audited results on Monday.
Elaborating on their disclaimer over lack of evidence to base an audit opinion over, the auditors referred to the company’s statement about it rectifying deficiencies over documentation on grant and roll-overs of unsecured inter-corporate deposits (ICDs), including non-availability of evaluation of credit-worthiness of the borrowers, commercial rationale forming basis of granting of the ICD. The auditors stated they were unable to evaluate recoverability of the instruments in absence of evidence to support the management’s assessment. As of March 31, 2019, aggregating outstanding ICDs stood at Rs 5,65,269 lakh.
The auditors took a similar stance across other matters, including the company’s disagreement with National Housing Bank’s observations following an inspection that determined the capital adequacy ratio of the company at March 31, 2018, lower to 10.24%. The auditors expressed their inability to determine whether the statement could witness any impact from accounting changes, missing documentations compromising underlying value of loans or devaluations in value of loans citing lack of proof.