Everything a DHFL FD and NCD holder needs to know

General
1

I would start by admitting that I hold some NCDs of DHFL.

I had an account with HDFC Securities and back in those days I just trusted the relationship manager and put money upon his saying without asking any questions. One of the reasons was he hailed from a place close to my hometown. So you form such biases, a trust. I made a mistake there. I have nothing against him, but later I realized that no one can manage your money better than you and the only way out is you have to learn. There is no other way. You have to know yourself first in a better way in order to venture out. I started reading online what is this and that and slowly I shifted my account to Zerodha to switch on DIY mode.

Coming back to the DHFL case, the NCDs are trading at a discount and it is a notional loss as of now. Recently I read an article by Sucheta Dalal (the same person who exposed Harshad Mehta Scam) that DHFL FD and NCD holders would have to take a haircut. Please note this article is a month old and the voting is over and Piramal has won the bidding for DHFL.

This haircut news came to me as a surprise as my ex-relationship manager had told me that NCD is secured and itā€™s a AAA rating, unlike an FD which is unsecured. After reading the article and watching the video, it has become even murkier with the possible underlying vested interests at the cost of retail investors.

Currently, 63 moons, one of the largest investors in DHFL NCDs is leading the legal battle. I had even sent an email to 63 moons about how to join the fight but didnā€™t get any response.

@Bhuvan @nithin you have covered the Franklin Templeton case in every detail.

Can I request you to update this thread from time to time as the DHFL case progresses like you covered the FT case?

Thanks,

11 Likes
2

Well yes both FD and NCD holders will have to take haircut. As such most of the secured lenders including banks are going to take big haircut. Based on accepted resolution plan and preliminary distribution plan, following is expected:

  1. FD and NCD holder with investment less than 2 lakh should be getting 90-100% of principal
  2. Remaining NCD holder should be getting back around 40%
  3. Remaining FD holders should get back around 25%
    Off course, number might change slightly. if you are holding NCD in demat form, Catalyst trusteeship would have sent you a mail providing access to Smartrooms.
    There generally COC meeting and IBC process updates are available.
1 Like
3

I remembered something uncanny with DHFL NCD which I would like to share -

When the Public Issue came out in 2018, my Mutual Fund Distributor, asked me to invest in it. He was rather pushy about it.

Yes, like many I too started off with an MF distributor and with regular mutual funds. Later when I started reading, I realized his commissions are not based on how the funds are performing but instead adding to my cost with higher TER regardless of the fundā€™s performance. That too he had signed me up for multiple ELSS funds with 3-year lock-in and 1 retirement fund where the lock-in is 5 years saying the locked-in funds perform better because people canā€™t exit soon with a little hiccup of market. Later, when I realized I have been trapped, I confronted him and broke up with him. Itā€™s quite painful to wait for the locked-in units to release so you can exit from them and clean up your portfolio. This was another lesson for me to realize everyone else who wants to manage your money, has their vested interest, and only if you are aware of what it is for them and how much, etc and if you accept it fully, only then proceed.

All new investors, please beware of MF distributors trapping you with ELSS funds where you have to wait out to get out. @nithin, one more reason I back the idea of a Nifty 50 based ELSS fund by Zerodha AMC (hopefully soon) because even if it would have a lock-in of 3 years as any ELSS fund has, the investor is actually investing money on Indiaā€™s economy, which is a good cause, unlike betting on the biases of any active fund. One can be bullish on India forever and thus I had said that the Nifty 50 based ELSS fund can double up as a retirement fund corpus as well.

Coming back to the DHFL NCD incident, so my MF distributor was a little pushy about it. I said, okay I would do it online. But he insisted I apply by filling paper form. I donā€™t like paperwork so I was a little hesitant. I said itā€™s too much work whereas I can do the same with a single click of a button in my Demat account.

He then told me that he would get a commission if I fill a paper form citing his Agent code and apply for the DHFL NCD. I asked how much he would get. He said 10%. If I apply for 50k, he would get 5k. And he was willing to share a part of that commission back with me. Imagine!

There are a few times in my life I have gone against my intuition and this was one of them. It rang an alarm in my heart that 10% commission for just signing up. Thereā€™s something fishy. But somehow I didnā€™t listen to it completely. If only. Though I didnā€™t fill the paper form and didnā€™t apply through my MF distributor, but later when my HDFC Securities Relationship Manager called me and asked me to put in it since it has AAA ratings, I somehow snoozed the alarm and gave in.

I am sharing my personal experiences and mistakes so people know how you are played out in the market. How our minds trick us sometimes. A lesson here is if someone is trying too hard to sell you something, please stay away. There must be some catch. Find out. Discover better things that are not shouting and nobody is paying attention to them. There canā€™t be a better way. Also, if everyone is running in the same direction doesnā€™t necessarily mean itā€™s the right way.

6 Likes
4

I really say thanks to @rupeshmandal posting such investor awakening posts. i donā€™t miss your posts, it help me to increase knowledge.
Iā€™m not a investor of any ncd, but following this post will increase my knowledge.
BTW, some days back, i have read a good article somewhere (didnā€™t remember the web address) in which the writer explained in detail how rating is not trustworthy, & how manipulation worked in that industry. he explained very well that believing on AAA rating is dangerous.so in short i agree with you, the only man who really help you in investing is ā€œYOUā€. so there is no any alternate option for learning abcd of investing.
thanks again.

2 Likes
5

Update:

RBI approves Piramalā€™s DHFL plan, resolution plan to be submitted to NCLT within a week.

While RBIā€™s nod has come in, every eye is on what happens next in NCLT where FD and NCD holders would oppose the decision.

In other news, Dr. Subramanian Swamy has filed a PIL in the Supreme Court against RBI to investigate its role in 10 scams in India.

2 Likes
6

In all likelihood, you will have to take the write-offs. I donā€™t think much will come of the cases.

1 Like
7

Still this case deserves to be followed-up equally like the Franklin Templeton case was covered by you. No?

8

Will post updates, sure

9

One more update:

10

And one more. Is there an end to it! :thinking:

11

NCLT begins hearing Piramalā€™s resolution plan. Next hearing on 22nd March.

12
13
14

Looks like resolution is finally near

15

Few years back, no one could even doubt that this Kapil Wadhawan was a fraud. He used to come on TV and give interviews and I actually thought he was quite serious in his business. Similar story is with Yes Bank Rana Kapoor.

The amount of money small, retail investors have lost is mind boggling. After reading rupeshmandal writeup, I was wondering, how can a retail investor ever find out what these guys are doing.

Yes bank with all the regulators such as internal/external auditors, Central Bank auditors and media/analyst looking at each numbers could do nothing. What can a retail investor do?

These frauds which they do cannot be done overnight, it must be done by few people within the company. Wonder what are the roles of the others in the company.

Satyam Computers - No one knew, this guy was fudging the books. Auditors used to give unqualified report. If I remember right, the auditor were one of the big 4.
Yes Bank - Rana Kapoor antics - (diamonds are forever), AT1 Bond Holders lost money due to relationship managers telling clients that the Bonds were superior to FD.
ILFS - Something similar fraud I guess.
Co Op Banks - Closure of these banks.

Recently Vedanta went in for delisting at the peak of pandemic. (fortunately the delisting failed due to LIC)

  1. delisting is the promoters choice no one can blame them.
  2. The board of directors whose main duty is to safeguard the interest of the shareholders, approved the delisting at 87.5 and passed it on to the shareholders for voting.
  3. To bring down the book value, the management made a provision of 13,000 crore.

What does all this mean. If a company can do all this in open day light with Bankers/auditors supporting them what can a retail investor ever do.

1 Like
16

But at the least for AT1 bond dont blame marketing manager

We have some basic minimal terminologies. Like bond fd etc

When they put huge money at the least they knew this carries risk element

17

What is the final settlement, because what I read online is causing too much of confusion? What is a retail investor getting/ losing out of it? Is there any clarity or framework being assigned officially?

18
19

Depends on which Category you are fitting in and whether holding is FD or NCD.
For retail NCD holder with less than 2lakh holding, expected payout is around 92% (almost 100% of capital).
Rest all gets around 40%

image
image772Ɨ116 4.71 KB

For FD holders its going to be 88% and 26%

image
image765Ɨ151 5.45 KB

Category 1 in tables is below 2 lakh. rest all are successive bands.

20

Few things a retail investor can do (especially for debt instruments)

  1. Try and understand the product, if returns are more than safe returns (SBI FD / Gsec) assume there is risk and prepare for that
  2. Implement some type of position control / diversification. Instead of investing in single company NCD or AT1 bonds, spread out with no position more than 5-10%. This way if one or two company goes down, you do not loose everything.
  3. beware of what is going on and Run at first sign of trouble. I agree that few years back nobody could have doubted DHFL ā€¦ but trouble were brewing for long time. By early 2019 it was know DHFL was in trouble, at tat time there was chance to sell DHFL NCD for 10-20% haircut and bail out. That way losses could have been limited. Same with Yes bank

Having said all this, I saw lot of retailers continue buying DHFL / yes bank stocks hoping for miracles even after all skeleton were out.
At least retailers can stop doing that.

1 Like