Future uncertain for DHFL’s life, general insurance arms

Future uncertain for DHFL’s life, general insurance arms
    Amid the financial crisis at Dewan Housing Finance (DHFL), the future of its life and general insurance arms remain uncertain. While the process for selling its stake in DHFL Pramerica Life Insurance is underway, its general insurance arm DHFL General Insurance, which is less than two years old, has also been put on the block.

    Sources said DHFL has not yet finalised a buyer for its life insurance arm. And the company wants to exit all non-core investments to generate liquidity. A stake sale in its non-life arm is also on the anvil.

    DHFL holds 51 percent in its life insurance arm and 100 percent in its general insurance arm through Wadhawan Global Capital.

    The insurance arms
    The general insurance arm posted a net loss of Rs 28.8 crore for FY19 on the back of a Rs 14.1 crore loss in FY18. However, it may not be fair to judge it from this performance alone. Non-life insurers take seven-to-eight years to achieve break-even and the company is one of the newest players in the sector.

    Data from Insurance Regulatory Development Authority of India (IRDAI) shows that the non-life company collected a gross written premium of Rs 243.06 crore in FY19, a jump from Rs 141.08 crore in FY18.

    On the other hand, DHFL Pramerica Life Insurance saw its profit after tax dip to Rs 85.1 crore in FY19 from Rs 105.8 crore a year ago. The life insurer collected total premiums of Rs 1,816.8 crore in FY19 as against Rs 1,844.4 crore in the year-ago period.

    “While the non-life arm is a young entity, DHFL may pare off a portion of its stake,” said a source, with another adding that the life insurance deal is yet to be finalised, citing its liquidity position and the resultant valuation.

    Queries sent to DHFL, DHFL Pramerica Life and DHFL General Insurance did not immediately elicit a response. The story will be updated to incorporate their responses whenever we receive it.

    Financial woes
    DHFL posted a loss of Rs 2,224 crore for the quarter-ended March 2019, which was dented by additional provisioning. It was the first quarterly loss reported by the company since its inception, as per records of its financials available on Moneycontrol since the June quarter of 1998.

    Also read: DHFL shares plunge 32%, hit 10-year low after a loss of Rs 2,224cr in Q4

    The housing finance company in a statement to the stock exchanges on July 13 said it is undergoing substantial financial stress since the second half of the financial year.

    “The company has suffered consistent downgrades in its credit ratings since February. In June, our credit rating was reduced to ‘default grade’ despite there being no default till that date. The company’s ability to raise funds has been substantially impaired and the business has been brought to a standstill with there being minimal/virtually no disbursements. These developments may raise a significant doubt on the ability of the company to continue as a going concern,” DHFL said in a statement to the exchanges last week.

    However, DHFL has been dealing with a liquidity crisis since September 2018 like other non-banking financial companies. This follows a series of defaults by infrastructure lender IL&FS on its debt payments since June 2018.

    What happens to the insurance ventures?In February, Prudential Financial, the foreign joint venture partner in DHFL Pramerica Life Insurance (DPLI), had said it will find a new majority Indian shareholder for the company and will work with JV partner DHFL on the same.

    With DHFL under financial stress, its first priority has been to hive off its non-core ventures including insurance. The parent company will have to find a partner to sell off its stake in the life insurance arm since its foreign partner’s holding has already reached the foreign investment cap.

    On the general insurance front, however, the endeavour will be to slowly sell the stake to interested parties. With private equity players now allowed to become promoters of insurance companies, sources said these entities could be the first ones to be approached for a stake sale.