Mumbai: Once considered the third largest real estate developer in India, Mumbai-based Housing Development and Infrastructure Ltd (HDIL) has only spiralled down in 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 office wing (EoW) arrested HDIL’s executive chairman Rakesh Kumar Wadhawan and his son Sarang, managing director of the company, for their alleged role in the ?4355-crore financial fraud in Punjab and Maharashtra Cooperative (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 regards to its rising debt. As of 31 March, HDIL’s total debt stood at ?1996.43 crore.
The 42-year-old Sarang, Vice Chairman & Managing Director of the beleaguered company, was confident he would be able to tide over the financial burden given that the company owned huge land bank to the tune of around 222 million sq ft. The company would offload to repay the debts, he had said.
A management graduate from University of Houston, Sarang had joined the family business in 2000. Since then he has taken over the reins of the company.
HDIL, which is largely a slum rehab developer, had come out unscathed during the financial meltdown in 2008.
To be sure, the Wadhawan family’s businesses span real estate, financial services and retail among others. As part of the 2009 restructuring plan, Sarang, along with his father and the company’s executive chairman, Rakesh, took complete charge of HDIL. Cousins Kapil and Dheeraj Wadhawan took over the management of Dewan Housing Finance Ltd (DHFL) as well as the family’s other retail and hotel businesses.
Later, Kapil and Deeraj also floated a real estate firm RKW Developers Ltd, potentially creating friction between the families.
Post the downturn, HDIL also started shifting its focus to mainstream residential and commercial development. Though the company lost out the ?15,000 crore Dharavi redevelopment project in 2009 following the bankruptcy of its partner Lehman Brother Holdings Inc, the company had secured one of its largest slum rehabilitation project with Mumbai International Airport Pvt. Ltd (MIAL).
Never did the company know that the ?6500-crore MIAL project would lead to the downfall of the company. The project was to rehab 80,000 families and in turn generate development rights of 43.4 million sqft of real estate.
The project was stuck midway and too much debt was taken to fund it. The company, which got listed in 2007, had also used all the proceeds of the initial public offering (IPO) to buy additional land parcels for the project.
The changing regulatory norms and prolonged slump in the residential market further compounded the financial mess of the company.
While HDIL is currently fighting for survival in the bankruptcy court after Bank of India dragged the company to the National Company Law Tribunal (NCLT), something else was cooking too that would open a Pandora’s box of financial wrong doings 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 and expensive cars, had almost acted as an in-house banker of PMC bank.
Last month, the suspended managing director of PMC Bank Joy Thomas confessed that bank’s exposure to HDIL stood at ?6,500 crore, which is around 70% of the bank’s loan. All these went unreported, off the radar of the auditors and the Reserve bank of India for years.
The partnership can be traced back to 1986-87 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. The relationship between the lender and the Wadhawan family only grew subsequently.
In 2004, the family again deposited ?100 crore to help tide over bank’s financial crunch. However, trouble began when HDIL started defaulting in 2012-2013 particularly after its airport slum project was cancelled.