DHFL offers to repay investors in full, but seeks nod for ICA

DHFL has proposed to issue four sets of fresh debt securities collateralised to different assets.

MUMBAI: Dewan Housing Finance Corporation (DHFL) has offered to repay investors in full without any haircut over a period of time but has sought their consent to a bank-led process called the Inter-Creditor Agreement (ICA).

The company met representatives of non-bank institutional lenders and investors — including mutual funds, insurers, Employees’ Provident Fund Organisation (EPFO), provident funds and offshore lenders — and tried to persuade them to accept the plan proposed by the banks. The mutual funds and other investors are wary of the plan and want a full and final payment immediately. The ICA, which has already been signed by lenders, involves a package aimed at reviving the indebted company.

Kapil Wadhawan, chairman of DHFL, along with two senior executives, was present at the meeting. A detailed presentation on the resolution plan was made.


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Investors have two options
DHFL has proposed to issue four sets of fresh debt securities collateralised to different assets as this will help them elongate maturities, three executives who participated in the meeting told ET. The assets include retail, builders’ loans, credit to Slum Rehabilitation Authority (SRA) projects and one other class, they said. Pass-through certificates (PTCs) are also proposed to be issued.

For example, non-convertible debentures (NCDs) are collateralised against retail assets and are likely to yield interest payments every month. Performance-linked debentures (PLBs) would be offered mostly to unsecured investors and are directly linked to SRA projects. PLBs may pay nominal interest for the first two years but increase it in the following years.
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Unsecured creditors were also offered a 2.3% equity in the company. Those NCDs would be mostly of 10-year maturities offering rates in the range of 8.5-10%.

“All such non-bank institutions are going back to their boardrooms to decide on the proposals as they have to come up with a decision within a month,” said one of the persons. Their nod is crucial for the ICA even though banks make up a majority of the debt. The ICA guidelines need approval of at least 75% of creditors by value and 60% by number. Most mutual funds could not sign the ICA as they did not comply with Sebi mandated side-pocketing or segregation of stressed assets from performing investments.

The investors have two options: Either agree to such a proposal and be part of ICA or move Debt Recovery Tribunal (DRT). Catalyst, the custodian of DHFL bonds, has threatened to file a case in DRT acting on behalf of some of the investors. It has sought consent for ICA from all bondholders.

Bankers said agreement of non-bank creditors to the resolution plan is important for any progress since it insulates them against any litigation in the future. “Banks have already made their point clear. We have agreed on a plan and signed the ICA but it is better if other creditors also come on board because we do not want litigation delays later. If the others do not approve this, then they will need to come up with another plan. Banks may have to approach the regulators to show us the way forward in case there is no agreement,” said a senior executive from a public sector bank who has been actively involved in the process.
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Banks have broadly divided this plan into two baskets. 60% are retail loans which are performing well and 40% wholesale loans to builders and SRA projects. The plan is to sell these 40% loans to distressed funds or private equity players. DHFL’s annual general meeting is slated for Saturday when this plan will most likely be put to vote.

Other creditors are also aware of the situation. “The resolution plan is at an advanced stage. Any DRT filing would be tantamount to self-destruction as such cases take years to get resolved,” said a large institutional investor.
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In Friday’s meeting, DHFL is said to have offered to pay liquidation value right now to those willing to go to DRT. The company asked them to stay away from any legal action, which may upset the apple cart.

Meanwhile, some retail investors, who subscribed to DHFL bonds through public sales, have written to the authorities including the Securities and Exchange Board of India (Sebi), the Reserve Bank of India and the finance ministry seeking safety of their investment.

State Bank of India has already approached Sebi, seeking a one-time exception for mutual funds over a rule on segregation of assets so that they could be part of a resolution plan for DHFL, ET reported on September 25.
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