The fall of DHFL: hidden issues that everyone ignored
Publication date: 8 June 2023
Abstract
Learning outcomes
The learning outcomes are as follows: to be able to evaluate early warning signs/red flags through financial statement analysis; to be able to analyse company’s credit or debt servicing using a thorough process of fundamental analysis; to be able to analyse and decode the financial health of an organization through different financial tools applicable according to the industry such as default probability and financial ratios; and to be able to synthesize credit rating framework and role of credit rating agencies in the bond market.
Case overview/synopsis
In late January 2019, the allegation by an online investigative portal about the misuse of the Dewan Housing Finance Corporation Ltd. (DHFL) money by its promoter for buying asset abroad was the start of the fall of the non-banking finance company giant. This was followed by a series of downgrade by credit rating agencies on its debt and eventual default on its interest payment on 4 June 2019 which upset multiple portfolio investors and the regulators. Investors became sceptical about the regulator’s policy and inefficiencies of credit rating agencies in predicting the default along with asset management houses which were expected to guard investors’ interest. One investor, Shikhar Pachori, decided to scrutinize all hidden information on DHFL to investigate if DHFL crisis arises because of unknown factors which was not in control of management or if it a clear negligence on the part of all involved parties. The case tries to emphasize the aspect of Asset-Liability Management and process of credit analysis while looking for red flags which aids in identifying any stress in company’s financial or any potential default by company.
Complexity academic level
This case can be used in the advance level of post-graduate finance course or MBA program for elective/specialization courses such as Financial Statement Analysis, Financial Institutions and Market and Fixed Income.
Supplementary materials
Teaching notes are available for educators only.
Subject code
CSS 1: Accounting and Finance
Keywords
Acknowledgements
This case is solely based on secondary data sources and based out of author’s compilation of data from various public sources such as company reports, company websites, company investor presentations, news articles of leading business daily. Company financials have been extracted from published annual and quarterly reports and majorly from Bloomberg database. Author’s institution has paid access to Bloomberg terminals and authorised to utilize for research and teaching purposes. No company official, customer or supplier has provided any input, and therefore no permission is therefore required from the company. The authors grateful to receive valuable feedback from Associate Editor to improve quality of communication of the initial draft of the case.Disclaimer. This case is written solely for educational purposes and is not intended to represent successful or unsuccessful managerial decision making. The author/s may have disguised names; financial and other recognizable information to protect confidentiality.
Citation
Sharma, D., Singhi, S. and Kosambia, D. (2023), "The fall of DHFL: hidden issues that everyone ignored", , Vol. 13 No. 1. https://doi.org/10.1108/EEMCS-04-2020-0124
Publisher
:Emerald Publishing Limited
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