The resolution of Dewan Housing Finance Corp. Ltd (DHFL) is witnessing growing tussle between its bondholders and fixed depositors, both seeking priority in recovering their investments, said two people aware of the development, requesting anonymity.
The debate intensified on 20 February, when DHFL’s committee of creditors (CoC) met with representatives of both sides demanding preferential treatment. According to the first person, the administrator informed the CoC that depositors were looking for repayments for matured deposits and premature withdrawals in cases of medical emergencies.
“Fixed deposit (FD) holders’ representative presented that since many of these depositors are senior citizens and need money for medical purposes, their money should be repaid first," the person said, adding that the legal counsel for creditors said that during the moratorium under the Insolvency and Bankruptcy Code (IBC), no creditor can be repaid.
Since depositors and bondholders form a sizeable chunk, they are represented in the CoC. At present, the RBI-appointed administrator has admitted claims of ₹86,374 crore from all classes of creditors. Of this, ₹5,207 crore is from over 66,000 fixed depositors, and ₹81,140 crore from banks and bondholders led by Catalyst Trusteeship Ltd (CTL), acting as their custodian.
The RBI on 20 November 2019 had appointed R. Subramaniakumar, a former managing director and chief executive of Indian Overseas Bank, as DHFL’s administrator.
“The representative for bondholders said there should be no differentiation between a retail FD holder and a retail bond investor and any exemption should apply to both," the first person said, adding that the CTL representative also pointed out that a large number of bondholders are facing difficulties as well, and are also small retail investors akin to FD holders. “Hence, a distinction along such lines cannot be made," he said.
The problem for over 66,000 FD holders is absence of security for FDs, unlike secured bondholders. They have only about 6% voting right in the CoC, and are, therefore, unlikely to radically change the direction of the proceedings of the committee. However, they have moved the Supreme Court with their grievances, which directed them to approach the National Company Law Tribunal (NCLT) hearing the DHFL case.
“When the demands for preference to FD holders were not accepted, the representative asked if the CoC can vote on the issue. However, the legal counsel for the creditors rejected it saying it is not legally allowed to give preferential treatment," the second person said.
This person added that the CoC finally decided to discuss the issue only when it later has to decide on the approval of a specific resolution plan. The administrator also informed the CoC that his team had sent letters to around 17,000 depositors who had not filed their claims. Of this, 4,000 letters were returned undelivered because of wrong addresses.
At the same meeting, SBI Capital Markets (SBI Caps) advised lenders to cap their equity stake at 49% of the mortgage lender under resolution plans for Option 1 and Option 2A.
“Creditors wanted to be part of the company after the implementation of the resolution plan and look to sell it at a later date for an upside," said the second person quoted above.
Earlier, expressions of interest (EoIs) were sought from potential resolution applicants under three categories. Under Option 1, EoIs were sought for the entire business of DHFL as a going concern. Under Option 2A were retail assets, investments, unsecured loans and fixed assets etc; under Option 2B were construction finance loans, mortgage loans, corporate loans, and inter-corporate deposits, pass through certificates (PTCs) or security receipts and under Option 2C were loans to projects relating to Slum Rehabilitation Authority (SRA), Mumbai.
The administrator has received 14 EoIs for Option 1 and 21, 15, and 15 for Option 2A, 2B and 2C, respectively.