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The Economic Times

Plan to turn part of DHFL debt into equity

DHFL floats draft resolution plan; proposes conversion of debt into equity
ET also reported that DHFL has offered to repay investors in full without any haircut over a period of time but has sought their consent for ICA.
Mumbai: Lenders may convert part of Dewan Housing Finance Corp. Ltd’s debt into 51 per cent equity while nonbank entities such as mutual funds face losses of 40 per cent or more, said two people with knowledge of the proposed resolution plan. The latter will only get a share of the liquidation value as they’re not part of the creditors’ consortium as per the plan. The remaining loans may be hived off and an equity investor could take a stake in the firm.

The resolution plan under the Inter-Creditor Agreement (ICA) is being discussed by the creditors. They have to decide on this by October 25. The State Bank of India has approached Securities and Exchange Board of India for a one-time exception to the rule on segregation of assets that will allow mutual funds to be part of the resolution plan, ET reported over the weekend.

Investors may be Repaid in Full

Participation of mutual funds, which hold bonds issued by DHFL, is key to any resolution plan, as approval of at least 75 per cent of lenders by value and 60 per cent by number is compulsory under the ICA.

ET also reported that DHFL has offered to repay investors in full without any haircut over a period of time but has sought their consent for ICA.

Under the resolution plan, DHFL has proposed that the exposure of lenders be partly converted into equity at an assumed price of Rs 54 per share under a formula that prescribes a certain percentage for each category, such as banks and debenture holders.

Following the conversion, lenders will acquire a 51 per cent stake. The company has secured debt of Rs 74.054 crore and unsecured debt of Rs 9,818 crore. DHFL had a market value of Rs 1,325 crore at the end of Friday trade, when it closed at Rs 42.25 on the BSE, down 1.5 per cent.

“Any liquidation value required to be paid to the dissenting creditors under the ICA will be paid within a period of 12 months from the date of implementation of the proposed resolution plan as required under the June 7 circular issued by the RBI,” DHFL has said.

In addition to the conversion of debt to equity, liabilities will be restructured into term loans and nonconvertible debentures (NCDs) linked to cash flows from segregated portfolios of the company. DHFL chairman Kapil Wadhawan has assured lenders and investors that all repayments under the plan will be significantly higher than the liquidation value.

The repayment or restructuring of terms of public deposits is under discussion with relevant stakeholders and regulators and may be subject to amendments. What’s owed in terms of external commercial borrowings (ECBs) is assumed to have been fixed as per a cut-off date in rupee terms on the basis of the RBI reference rate that prevailed at the time.

Wadhawan told investors that DHFL has sold strategic investments in core retail financial services firms such as Avanse Financial Services, Aadhar Housing Finance and DHFL Pramerica AMC to generate cash. The company has also appointed former State Bank of India chief general manager Vaijinath MG as CEO.
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