India Entry & Business Startup Consultings

Behind HDIL downfall lies a failed slum project that became a financial drain

Behind HDIL downfall lies a failed slum project that became a financial drain

Once considered the third-largest realty developer in India, Mumbai-based Housing Development and Infrastructure Ltd (HDIL) has only spiraled down over the last few years, with the latest knock being the arrest of its promoters in connection to one of the country’s biggest bank scams.

On Thursday, Mumbai Police’s economic offenses wing (EOW) arrested HDIL’s executive chairman Rakesh Kumar Wadhawan and his son Sarang, the managing director of the company, in connection with a 4,355-crore fraud at Punjab and Maharashtra Co-operative (PMC) Bank.

“Like a kidney stone, even this too will pass," Sarang had said in an interview with a national daily last year talking about the difficult times the company was facing with regard to its rising debt. As on 31 March 2019, HDIL’s total debt stood at 1,996.43 crores.

Sarang, 42, was confident that he would be able to tide over the financial burden given that the company owned a huge land bank of around 222 million sq. ft. The company will offload land to repay the debts, he had said.

A management graduate from the University of Houston, Sarang joined the family business in 2000. Since then he had taken over the reins of the company. HDIL, which is largely a slum developer, had even come out unscathed during the financial meltdown in 2008. To be sure, the Wadhawan family’s businesses span real estate, financial services, and retail.

As part of a 2009 restructuring, Sarang and his father Rakesh took complete charge of HDIL, while cousins Kapil and Dheeraj Wadhawan took over the management of Dewan Housing Finance Corp. Ltd (DHFL), as well as the family’s other retail and hotel businesses.

Later Kapil and Dheeraj started another real estate firm, RKW Developers Ltd, potentially creating friction between the family members. Post the downturn, HDIL also started shifting its focus to mainstream residential and commercial development.

Though the company lost out on the 15,000-crore Dharavi redevelopment project in 2009 after the bankruptcy of its partner, Lehman Brother Holdings Inc. it secured one of its largest slum rehabilitation projects with Mumbai International Airport Pvt. Ltd (MIAL). But the 6,500 crore-MIAL projects led to the downfall of the company. The project was to rehabilitate 80,000 families and, in turn, generate development rights of over 43.4 million sq. ft.

However, it got stuck midway and too much debt was taken to fund it. The company, which got listed in 2007, also used up all the proceeds of the initial public offering to buy additional land parcels for the project. Subsequently, changing regulatory norms and the prolonged slump in the residential housing market worsened the financial mess.

While HDIL is currently fighting for survival in the bankruptcy court after the Bank of India dragged it to the National Company Law Tribunal (NCLT), something else was cooking that would open Pandora’s box of financial wrongdoings of the Wadhawans.

This time, the mess was far deeper and much more entangled within the family. For years, the Wadhawans, known for their love of flashy cars, had virtually treated PMC bank as a personal lender.

Last month, the suspended managing director of PMC Bank, Joy Thomas, confessed that the bank’s exposure to HDIL stood at 6,500 crore, which is around 70% of the bank’s loan book. This had gone unreported, completely out of the radar of the auditors and the RBI for years.

The partnership can be traced back to when the late Rajesh Kumar Wadhawan, then director of Land Development Corp. and many other firms run by the Wadhawan family, infused 13 lakh into the bank in 1986-87.

Since then the relationship between the lender and the Wadhawan family had only grown. In 2004, the family deposited 100 crores to again help the bank tide over a financial crunch. However, trouble began when HDIL started defaulting in 2012-13 particularly after its airport slum project was canceled.


Leave a Reply

Your email address will not be published. Required fields are marked *