When news of the sale spread, DHFL stock crashed 60%🔻.
And then all the banks and the fund houses that ever loaned money to DHFL took a back seat and said “
At the same time, there were also allegations that the promoters (owners) of the company were siphoning funds to enrich themselves. Eventually, though the allegations fizzled out
Until they finally defaulted in June 2019.
It was at this point that the company finally stated that it was going through substantial financial stress.
So what went wrong?
A root cause analysis will reveal that DHFL, much like other NBFCs was running what bankers call an “asset-liability mismatch”.
But it has a rather simple workaround nonetheless. DHFL borrows funds with short repayment periods by issuing a contract note. In banking parlance, they call this a Commercial Paper (CP).
Long story short, DHFL was running out of time.