Brokers, advisers warn against trading in DHFL stock

Trading in DHFL is risky as shareholders get little preference under bankruptcy proceedings. (istockphoto) — Trading in DHFL is risky as shareholders get little preference under bankruptcy proceedings. **(istockphoto)**

1 min read . Updated: 08 Jun 2021, 04:01 PM IST Livemint

Under IBC, the company which wins the bid can write down the entire equity. The value of stock for existing shareholders can go down to zero

The Dewan Housing Finance Corporation Ltd. (DHFL) stock rose over 9% on Tuesday despite reports that the company will be delisted after Piramal Capital and Housing Finance acquires it.

Piramal Capital had emerged as the successful bidder for DHFL, which was going through the resolution process under the Insolvency and Bankruptcy Code (IBC).

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Trading in DHFL is risky as shareholders get little preference under bankruptcy proceedings.

The objective of IBC is to allow lenders to recover their dues. The money that the bidders pay to acquire the company goes towards the government dues and to secured and unsecured creditors.

Under IBC, the company which wins the bid can write down the entire equity. The value of stock for existing shareholders can go down to zero.

Discount broker Zerodha has issued a warning for investors on its Twitter handle. “Equity shares of DHLF (NSE) are likely to be extinguished as part of the acquisition of the company due to NCLT’s insolvency process. There can be a significant risk of you losing your entire investment by trading in this stock. DHFL is at the upper circuit price for the day, which means there are no sellers. Buy order will remain pending until filled," the post's message that the company is sending to its customers said.

Given that $DHFL may be delisted and the value of the shares may be written off to zero, this is the nudge we are showing on Kite to warn users of the risks. pic.twitter.com/0cml99TEgG
— Zerodha (@zerodhaonline) June 8, 2021

Even in the past, many investors traded in stocks of companies that were going through the resolution process under the IBC only to later realise that the shares they held were of little value.

Many others, like Deepak Shenoy of Capital Mind, have also warned investors to stay away from DHFL, saying that today’s share will have zero value once the resolution process is complete.

Be careful if you hear tips asking you to buy DHFL. The nclt has approved the resolution plan, where I believe the plan is for the shares to be written off to zero. Piramal will then get new shares. Today's shares will have zero value, beware.
— Deepak Shenoy (@deepakshenoy) June 7, 2021

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