dewan housing finance corporation housing finance corporation limited (originally incorporated as...

Download DEWAN HOUSING FINANCE CORPORATION   housing finance corporation limited (Originally Incorporated as “Dewan Housing Finance  Leasing Company Ltd.” on 11th April 1984 under the Companies Act, 1956. The name was subsequently changed to “Dewan Housing Development Finance Ltd.” on the 26th September 1984 and later to

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  • DEWAN HOUSING FINANCE CORPORATION LIMITED(Originally Incorporated as Dewan Housing Finance & Leasing Company Ltd. on 11th April 1984 under the Companies Act, 1956.The name was subsequently changed to Dewan Housing Development Finance Ltd. on the 26th September 1984 and later toDewan Housing Finance Corporation Ltd. on 25th August 1992.)

    (For Private circulation to the equity shareholders of the Company)

    Registered Office : Warden House, Sir P M Road, Fort, Mumbai 400 001.Tel: (022) 2202 9900 / 2204 7092 Fax: (022) 2287 1985

    Corporate Office : Madhava, Bandra Kurla Complex, Bandra (E), Mumbai 400 051Tel. (022) 2659 1222 (5 lines) Fax: (022) 2659 4865 E-mail: info@dhfl.comWeb site: www.dhfl.com

    Offer for 1,43,18,063 Equity Shares of Rs.10/- each for cash at premium of Rs.25/- per share (i.e. at aprice of Rs.35/- per share) aggregating to Rs.5011.32 lacs on a rights basis to the existing equityshareholders of the Company in the ratio of 4 (Four) Equity Shares for every 10 (Ten) Equity Sharesof Rs.10/- each held as on 03/12/2004 (the Record Date).

    GENERAL RISKS

    Investment in equity and equity related securities involve a degree of risk and investors should not invest any funds inthis issue unless they can afford to take the risk of losing their investment. Investors are advised to read the risk factorscarefully before taking an investment decision in this Issue. For taking an investment decision, investors must rely ontheir own examination of the Issuer and the Issue including the risks involved. The securities have not been recommendedor approved by the Securities and Exchange Board of India (SEBI) nor does SEBI guarantee the accuracy or theadequacy of this document. The attention of investors is drawn to the statement of Risk Factors appearing onpage nos. (ii) to (viii) of this Letter of Offer.

    ISSUERS ABSOLUTE RESPONSIBILITY

    The Issuer, having made all reasonable inquiries, accepts responsibility for, and confirms that this Letter of Offer containsall information with regard to the Issuer and the Issue, which is material in context of the Issue, that the informationcontained in this Letter of Offer is true and correct in all material respects and is not misleading in any material respect,that the opinions and intentions, expressed herein are honestly held and that there are no other facts, the omission ofwhich makes this document as a whole or any of such information or the expression of any such opinions or intentionsmisleading in any material respect.

    LISTING

    The existing equity shares of the Company are listed on The Stock Exchanges at Mumbai (BSE) (Designated StockExchange) and National Stock Exchange of India Ltd. (NSE). Applications will be made to these stock exchanges forpermission to deal in and for an official quotation in respect of the equity shares of the Company being offered in termsof this Letter of OfferThe Company has received in-principle approval from BSE and NSE for the Rights Issue vide theirletter no. DCS/SMG/NSS/04 dated 23/10/2004 and letter no. NSE/LIST/6701-6 dated 07/10/2004 respectively.

    LEAD MANAGER TO THE ISSUE REGISTRAR TO THE ISSUE

    307, Regent Chambers,Nariman Point, Mumbai - 400 021Tel. : (022) 2202 5230Fax : (022) 2283 5467e-mail: mbd@keynoteindia.netSebi Regn. No.: INM 000003606AMBI Regn No: AMBI/040

    ISSUE OPENS ON : 20th December, 2004, MondayLAST DATE FOR RECEIVING REQUESTS FOR SPLIT FORMS 04th January, 2005, TuesdayISSUE CLOSES ON : 19th January, 2005, Wednesday

    LETTER OF OFFER

    INTIME SPECTURM REGISTRY LIMITEDC-13, Pannalal Silk Mills Compound,LBS Road, Bhandup West,Mumbai - 400 078Tel.: (022) 5555 5454Fax: (022) 5555 5353e-mail: isrl@intimespectrum.comSEBI Regn. No.: INR 00003761

  • INDEX TO THE CONTENTS

    Title Page Nos.

    - Definitions / Abbreviation i

    - Risk Factors & Management Proposals Thereof ii

    I IMPORTANT INFORMATION 1

    II. GENERAL INFORMATION 5

    III CAPITAL STRUCTURE OF THE COMPANY 9

    IV PRINCIPAL TERMS OF THE ISSUE 15

    V PARTICULARS OF THE ISSUE 25

    VI COMPANY MANAGEMENT AND PROJECT 27

    VII FINANCIAL INFORMATION 48

    VIII MANAGEMENT DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION ANDRESULTS OF THE OPERATIONS AS REFLECTED IN THE FINANCIAL STATEMENTS 61

    IX WORKING RESULTS 66

    X RISK FACTORS 67

    XI OTHER MATTERS 70

    XII MATERIAL CONTRACTS AND DOCUMENTS 71

    XIII DECLARATION 72

  • i

    DEFINITIONS/ABBREVIATIONS

    Articles : Articles of Association of Dewan Housing Finance Corporation Limited

    ALM : Asset Liability Management

    Board : Board of Directors of Dewan Housing Finance Corporation Limited

    BSE/Designated Stock Exchange : The Stock Exchange, Mumbai

    CAF : Composite Application Form

    EMI : Equated Monthly Installment

    FEMA : The Foreign Exchange Management Act, 1999

    FERA : Foreign Exchange Regulation Act, 1973

    FII : Foreign Institutional Investor

    GOI : Government of India

    HFC : Housing Finance Company

    Letter of Offer : This Letter of Offer dated 06/12/2004

    Memorandum : Memorandum of Association of Dewan Housing Finance Corporation Limited

    NHB : National Housing Bank

    NPA : Non Performing Assets

    NRI : Non-Resident Indian.

    NSE : National Stock Exchange of India Limited

    OCB : Overseas Corporate Bodies

    Offer/Issue : Offer for the issue of 1,43,18,063 Equity Shares of Rs.10/- each for cashat premium of Rs.25/- aggregating Rs.5011.32 lacs on a rights basis to theexisting equity shareholders of the Company in the ratio of 4 (Four) EquityShares for every 10 (Ten) Equity Shares of Rs.10/- each held as on theRecord Date (i.e. 03/12/2004)

    RBI : Reserve Bank of India

    SEBI : Securities and Exchange Board of India.

    SARFAESI Act : Securitisation and Reconstruction of Financial Assets and Enforcement ofSecurity Interest Act

    The Act : The Companies Act, 1956.

    The Company / DHFL : Dewan Housing Finance Corporation Limited

    Tier-I Capital : Means owned fund as reduced by Investment in shares of other HousingFinance Companies and in shares, debentures, bonds, outstanding loansand advances including hire purchase and lease finance made to anddeposits with subsidiaries and companies in the same group exceeding inaggregate 10% of owned funds.

    Tier-II Capital : Includes the following :

    1. Preference shares (other than those compulsorily convertible into equity)

    2. Revaluation reserve at discounted rate of 55%.

    3. General provisions and loss reserves to the extent these are notattributable to actual diminution in value or potential loss in any specificasset and are available to meet unexpected losses to the extent of 1and 1/4 % of risk weighted assets.

    4. Hybrid debt

    5. Subordinated Debt

  • ii

    RISK ENVISAGED BY MANAGEMENT AND MANAGEMENT PROPOSALS (MP) TOADDRESS THE RISKS

    A. INTERNAL RISK FACTORS

    1. Contingent Liabilities

    As on March 31, 2004 the contingent liabilities of the Company were at Rs.2.30 crores comprising guaranteesprovided by the Company.

    Management Proposal

    The contingent liabilities have arisen in the normal course of business of the Company.

    2. Conflict of Interest

    DHFL Vysya housing Finance Ltd. a subsidiary of DHFL is also engaged in the business of providing housingfinance. To this extent there is a conflict of interest between the two companies.

    3. Legal/Regulatory Risk

    The housing finance business involves creation and dealing with mortgages. However, in the case ofmortgages, enforcement risks exist in markets with weak Legal and Regulatory systems, along with volatileeconomic and political conditions.

    Management Proposal

    This type of risk is not accepted by risk intermediaries such as mortgage insurers. Short-term unsecuredloans issued by Housing Finance Companies (HFCs) are covered by an insurance cover similar to thatprovided for bank deposits under the Deposit Insurance and Credit Guarantee Corporation (DICGC) scheme.Further, the SARFAESI Act empowers HFCs to take over the assets in case of defaults, which is a much-simplified procedure.

    4. Credit Risk

    The housing finance companies face credit risk because of the lack of hard data and historical performancemeasures with which to assess the real risk. This is typical of developing markets. The credit risk also ariseson account of the quality of the mortgage loan portfolio and it is extremely important to control this risk inhousing finance industry.

    Management Proposal

    It is important to assess the repayment capacity of the borrower, find the collateral that the borrower can offerand insure the receivables from various uncertainties that may occur during the existence of the loan. DHFLhas a team of well-qualified and experienced professionals administering the credit function. The creditappraisal systems are in place and are followed uniformly. These measures minimize the credit risk to a greatextent. DHFL also provides Triple Insurance Cover to the borrowers to safeguard the borrowers and itselfagainst any uncertainties in future. Low level of NPAs in DHFL indicates the control over credit risk.

    Further, formation of Credit Information Bureau (India) Limited (CIBIL) has also helped DHFL in reducingcredit risk due to the availability of data on the credit profile of its borrowers. CIBIL was formed by the StateBank of India (SBI), Housing Development Finance Corporation Limited (HDFC), Dun & Bradstreet InformationServices India Private Limited (D&B) and TransUnion International Inc. (TransUnion)

    The idea behind CIBIL was to fulfil the need for comprehensive credit information by gathering credit relatedinformation regarding commercial and consumer borrowers, maintaining a database of this informa