Investors need not panic about DHFL, Essel Group news

By Morningstar Analysts |  30-01-19 | 

This year promises to be a volatile one for stock market investors. And it’s not just the General Elections.

It’s the hangover from 2018 and a little too much of excitement in January 2019.

Investors’ nerves were frayed after the collapse of IL&FS. News of DHFL being unable to service its commercial paper began doing the rounds.

Then there was the whistleblower email to the Securities and Exchange Board of India (SEBI) with regards to Sun Pharma.

The Reserve Bank of India (RBI) cited "serious lapses" in governance and a "poor compliance culture" with reference to Yes Bank. Chanda Kochhar and ICICI Bank were in the news for the wrong reasons.

SEBI rejected L&T’s proposal for its Rs 9,000 crore share buyback stating that it was not in compliance with the Companies Act and SEBI norms. The regulator expressed the view that the “ratio of the aggregate of secured and unsecured debts owed by the company after buyback (assuming full acceptance) would be more than twice the paid-up capital and free reserves of the company based on consolidated financial statements”.

Financial turmoil at cash-strapped Jet Airways has begun to, reportedly, impact its operations. Post restructuring, State Bank of India is likely to own 15% of the airline, Etihad Airways could see its stake rise to 40% (from 24%), while Naresh Goyal is likely to see his stake cut to 20% (from 51%).

HDFC, India’s mortgage-lending pioneer, reported a 60% profit fall in the last quarter. The decline is being attributed to a major one-time gain in the year-ago quarter.

That is just some of it. Here, we specifically address two issues that seem to be worrying fund investors. 

Essel Group

The exposure of mutual funds to Essel Group Holding is backed by pledged shares of Zee Entertainment Enterprises. Given the steep drop in the prices of Zee shares, the collateral value has come down. Nevertheless, there is a breather as the Essel Group has reached an understanding with lenders to not declare it a defaulter. The promoter is making every possible effort to resolve the situation.

As of now, there is no default and no rating action has been taken by the rating agencies.

The agreement of the promoter with the lenders only goes to prove that the promoter is willing to make the repayments with absolutely no intention to default.


Dewan Housing Finance Ltd has made headlines because investigative portal Cobrapost has alleged a Rs 31,000 crore scam by the promoters.

While that has hit sentiment, the veracity of the same cannot be ascertained. The company has categorically denied the allegations made against them.

No default has taken place and it must be noted that the company, till date, has successfully serviced its debt obligations.

Neither have rating agencies changed their rating.

We urge investors:

  • Not to get carried away by the noise.
  • Not to panic or make decisions in haste because they are almost always counter-productive.
  • We suggest that you have a word with your financial adviser.

Morningstar's analysts will continue to monitor the situation.

You can view the exposure of AMCs to DHFL and Essel Group here.

Add a Comment
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Ravindra Gokhale
Feb 15 2019 06:19 AM
 Dear Sir,
All is not well with DHFL.
The quarterly results and audited report should tell the tale if auditors do their job.Unfortunately the auditors are biggest culprits. They are good in window dressing.
All rating agencies have failed, they rate sitting in their AC offices, based on the fudged documents prepared by the auditors. We do not ahve faith on either of these. Otherwise IL & FS would not have happened. and as also the shit Anil Ambani and his companies are in.
Please dont make statement that is based on these two agencies, they will bring bad repute to you also, in case it goes otherwise and you will loose our trust.
Dhruva Chatterji
Feb 5 2019 07:15 AM
 Is morningstar really equipped to make a casual statement like not to worry about dhfl and essel group exposure...esp. for debt mf investors?

Maybe investors should not panic...but to indicate to shun away any concerns is too simplistic and quite irresponsible in my opinion....are you credit rating experts?

What if the adverse happens? Will you bail out or compensate investors?

Pls do not make such statements so is irresponsible frm a fiduciary perspective.
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