DHFL had offered deposits ranging from 12 months to 120 months, with interest rates ranging from 8.2% to 9.25%
Term, fixed deposit holders likely to be paid on maturity without haircuts
Cash-strapped mortgage lender Dewan Housing Finance Corp. Ltd (DHFL) is likely to submit a resolution plan promising to repay all term and fixed deposit holders on maturity without them having to take any haircut, two people directly aware of the internal discussions said, requesting anonymity.
According to the people cited above, a major consultancy is working on the plan, under which DHFL may also seek a moratorium on its debt repayments with lenders, extending the tenure of existing loan facilities by up to 10-20 years, depending on the size of the facility and the maturity period.
The lenders are expected to meet in the coming weeks to discuss the restructuring proposal.
“The company plans to propose restructuring terms to lenders across the board, which includes fresh issuance of non-convertible debentures (NCDs), including zero coupon bonds," said the first person. “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."
On 21 May, DHFL stopped accepting fresh public deposits and renewals of existing deposits. It also stopped premature withdrawals of existing deposits to “help reorganize its liability management".
The company, however, said it will honour premature deposit withdrawal requests in case of a medical or financial emergency, subject to fulfilment of appropriate documentation.
DHFL had offered deposits ranging from 12 months to 120 months, with interest rates ranging from 8.2% to 9.25% (on deposits of less than ₹5 crore). Its fixed deposit liability was ₹10,000 crore as of December 2018, according to its corporate filings.
Mint reported on 15 July that DHFL needs ₹2,500-3,000 crore of fresh equity investments to sustain lending operations.
The non-banking financial company (NBFC), which declared losses of ₹2,223 crore for the fourth quarter of FY19 last Saturday, said in its notes to accounts that the National Housing Bank has reassessed the company’s FY18 capital adequacy ratio, which measures a bank’s capital in relation to its risk-weighted assets, at 10.24%—which is lower than its own assessment of 15.29% and the regulatory minimum of 12%.
“Getting all lenders, who include individual NCD holders, mutual funds (MFs) and banks, is proving to be a tough task," the second person cited above said.
“Sebi (Securities and Exchange Board of India) has already reprimanded mutual funds for agreeing to a similar standstill agreement for the Essel Group earlier this year and, therefore, without an explicit approval from Sebi, MFs are reluctant to sign any inter-creditor agreement (ICA), which will be the first step toward debt resolution."
The mortgage lender has been the worst hit by the liquidity crisis in the NBFC sector, which in turn was triggered by the defaults at Infrastructure Leasing and Financial Services Ltd (IL&FS). Private Equity firms Oaktree Capital, Cerberus Capital and AION Capital have already submitted non-binding offers to buy a stake in DHFL, the first person said, adding that the mortgage lender’s board will discuss the offers at its next meeting.
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 banks," said the first person. “Otherwise, DHFL may find it extremely difficult to raise fresh equity from external investors."
An email query to DHFL did not elicit any response till press time.