DHFL lenders consider liquidating firm's assets to recover their dues

With speculation growing on the quality of assets at beleaguered Dewan Housing Finance Corporation (DHFL), its lenders are looking at alternatives to recover their dues.

“They have turned cautious with respect to converting their outstanding debt to equity in DHFL,” said a person in the know.

It is learnt the lenders are, therefore, working on a Plan B. They are discussing liquidating or buying out the assets of DHFL in lieu of their loan dues. 

Banks have total exposure of Rs 47,000 crore, including non-convertible debentures (NCDs). Other secured lenders such as mutual funds and retail NCD holders have an exposure of about Rs 17,000 crore. DHFL has assets worth Rs 90,000 crore and about half its loan book comprises retail (meaning to individuals) home loans. 

“The lenders are waiting for DHFL’s response to the finding of the forensic (audit) report (done by KPMG) and a decision on an alternative to recover the dues will be made in the next two to three weeks, when the banks will have to start providing for their exposure in DHFL,” said a highly placed source.

DHFL was formally classified as a standard asset for most banks till the September quarter. This is expected to change in the ongoing quarter — they might have to provide 15 per cent against their exposure. Sources say the non-lenders involved have consented that the banks can liquidate DHFL’s assets to settle the dues. 

“As long as a reasonable part of the principal money can be recovered by liquidating the assets, we are okay with it,” said a senior executive of a mutual fund house.  

It appears the banks had lately turned wary of converting part of their debt to equity. “Unless there is firm confirmation from the interested private equity (PE) investor to buy out the banks’ shareholding in DHFL within six to nine months of their converting the debt to equity, the banks might not give their consent to the proposed resolution plan,” said a source. 

The plan had proposed that the banks convert a little over 2 per cent of their loan dues to DHFL into equity, at a face value of Rs 1 a share. This is about Rs 6,000 crore of debt conversion to equity.

“The banks have asked DHFL to negotiate with the interested PE firm that this money (Rs 6,000 crore) be deposited in an escrow account and that the investor enters into a binding agreement with DHFL to take majority stake in the company,” said the person cited above. “They are okay if the term-sheet between the PE investor and DHFL comes with certain conditions and are willing to help regularise its business. But, they need a firm commitment from the investor.”  

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