DHFL resolution plan may offer immediate repayment to FD holders

Cash-strapped mortgage lender Dewan Housing Finance Company Limited (DHFL) is likely to submit a resolution plan that will offer a full and immediate repayment to all term- or fixed deposit holders in the company without any haircut, two people directly aware of the internal discussions told Mint requesting anonymity.

The resolution plan, which is being worked on by Big 4 consulting firm, will seek moratorium on debt repayments extending the tenor in some cases of existing loan facilities by 10 to 20 years depending on the size of the facility and the maturity period, according to the persons cited above.

“The company plans to propose the restructuring terms to lenders across the broad which includes fresh issuance of Non Convertible Debentures (NCDs), including zero coupon bonds said the first person cited above. In addition, a large portion of the new NCD series will have lower coupon rate and some of the outstanding debt will be converted into equity by lenders" the first person added.

On May 21, DHFL stopped fresh public deposits and renewals of existing deposits. It also halted premature withdrawals of existing deposits to "help reorganise its liability management". However, the company said it will honour premature deposit withdrawal requests in case of a medical or financial emergency, subject to fulfilment of appropriate documentation.

Mint reported on 15 July that DHFL needs between ₹2,500 crore and ₹3,000 crore of fresh equity investments to sustain lending operations, two people aware of the development said. DHFL, which declared a quarterly loss of ₹2,224 crore on Saturday, said in its notes to accounts that the National Housing Bank has restated the company’s FY18 capital adequacy ratio, which measures a bank’s capital in relation to its risk-weighted assets, at 10.24%, lower than its own assessment of 15.29% and the regulatory minimum of 12%.

“Getting all lenders which include individual NCD holders, mutual funds (MF) and banks is proving to be a tough task," said the second person cited above. Market regulator SEBI has already reprimanded MFs for agreeing to a similar standstill agreement for Essel Group, and therefore without an explicit approval from SEBI, MFs are reluctant to sign any inter-creditor Agreement (ICA), which will be the first step towards debt resolution.

A consensus among the lenders is also crucial for any potential equity investment in DHFL which has received non binding bids from three global PE funds so far. “PE investors will commit an investment only when there is enough clarity on a resolution plan with adequate assurance of further lending by the lenders, especially the banks," said the first person said adding. “Otherwise DHFL may find it extremely difficult to raise fresh equity from external investors."

An email sent to DHFL remained answered till the time of publishing the article.