DHFL resolution plan: Lenders to take zero haircut on principal amount

Topics DHFL | IBC resolution

After months of deliberation, cash-crunched Dewan Housing Finance Corporation (DHFL) finalised and placed a resolution plan before its lenders on Tuesday. 

The company, in an intimation to the stock exchanges, said  the draft resolution plan formulated in consultation with a special committee set up for the purpose and Ernst & Young, its financial advisor, was submitted to its lenders on Tuesday.

Following the development, the DHFL stock rose by 32.1 per cent on the BSE to close at Rs 55.4 apiece. However, this is hardly any relief for the company, given that the stock has lost significantly from over Rs 600 seen last September, before the crisis hit DHFL and the non-banking finance sector.

According to the draft resolution plan, creditors may not have to take a haircut on the principal loan exposure to DHFL. 

The company has also proposed steps and measures towards addressing its asset-liability mismatch while seeking moratorium on loan repayments. DHFL is also seeking fresh lines of credit from banks and National Housing Bank (NHB) for restarting its retail lending business.

Banks had an exposure of Rs 40,600 crore to DHFL as on March 31, while the firm has an obligation of Rs 45,380 crore towards those holding its bonds and debentures. DHFL’s loan assets totalled Rs 98,000 crore.

It is understood that DHFL has sought fresh loans of Rs 1,200-Rs 1,500 crore a month, which will be backed by loans the company will extend upon restarting of its business. 

Also, DHFL is seeking a moratorium of 6-12 months on these fresh loans besides extension of tenure on current loans (to address the asset-liability mismatch). 

The consortium of bankers, led by Union Bank of India, is yet to approve these proposals put forth by DHFL.

In another development, DHFL intimated that one of its joint statutory auditors — Deloitte Haskins & Sells LLP — tendered its resignation as statutory auditors of the company. DHFL is in discussions with leading audit firms for appointing statutory auditors. 

It is also understood that mutual funds (MFs) are still awaiting clarity on how the resolution process under the inter-creditor agreement (ICA) would impact their debt exposures to DHFL. 

According to people in the know, some MFs are considering selling DHFL debt papers to banks — which are leading the ICA process — at a negotiated discounted rate. “MFs will be in a better position to take a decision after there is clarity on the moratorium period,” said Alok Singh, chief investment officer at BOI AXA MF. 

Last week, DSP MF said it was considering the legal route to recover Rs 75 crore dues on commercial papers that matured on June 25. 

Sources said MFs didn’t want to be treated unfairly in DHFL’s resolution process, which is being led by a consortium of 27 banks. “MFs should be treated on a par with retail investors as MFs also receive investments from retail investors,” said the head of a fixed income, requesting anonymity.

In June, MF exposure had reduced sharply. It was more on account of industry-wide markdowns taken by MFs following DHFL’s default and rating downgrade to below-investment grade in June. 

At the end of May, MF exposure to DHFL stood at Rs 4,138 crore, with as many as 160 schemes exposed to the firm.

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