An attempt by banks to prepare a broad-based inter-creditor agreement (ICA) for lenders of the troubled Dewan Housing Finance Ltd (DHFL) may face challenges as some creditors say they may find it difficult to join the agreement because they are governed by multiple regulators.
Seven state-run lenders of DHFL, including State Bank of India and Union Bank of India, met 300 institutional bondholders, comprising mutual funds, provident funds and pension funds on Thursday to explore options of working together to restructure DHFL’s ₹1 trillion debt.
Only about ₹38,000 crore of DHFL’s ₹1 trillion debt is held by banks, making the involvement of other players a necessity. Roughly ₹5,000 crore is held by mutual funds and ₹3,300 crore by exempted provident fund trusts (part of the Employees’ Provident Fund system). It is, however, not clear how much is distributed among National Pension System (NPS) funds and retail bondholders. Besides, 165 mutual fund schemes are exposed to DHFL (as on 30 April) across 24 asset management companies (AMCs).
A 7 June Reserve Bank of India (RBI) circular on governing ICAs requires 75% of lenders by value of the total outstanding credit facilities (fund-based and non-fund based) and 60% of lenders by number, to agree to the ICA for it to be binding upon all the lenders. Non-RBI regulated entities, such as mutual funds and pension funds, have also indicated that they were not governed by the RBI circular and, hence, it may not be binding on them even if the banks secure the requisite numbers.
“The NPS Trust was represented at the creditor meeting and they will first have to take a call on this," said Kumar Shardindu, managing director and chief executive officer, SBI Pension Fund. “There will be no decision on this in a hurry from the point of view of pension funds," he added. “Mutual funds are regulated by the Securities and Exchange Board of India (Sebi) and not by the RBI. SBI Capital Markets Ltd has approached Sebi to get its consent to the ICA," said a debt fund manager at an AMC, which has exposure to DHFL debt, on condition of anonymity.
Referring to the lenders’ consortium, in case of the debt due from the Essel Group, Sebi said on 28 June that “it did not recognize" standstill agreements. It also initiated adjudication proceeding against two AMCs who had fixed maturity plans (FMPs) exposed to Essel Group debt.
Non-convertible debenture (NCD) holders have questioned the absence of any action by the debenture trustee, Pune-based Catalyst Trusteeship Ltd, which is supposed to represent NCD holders.
According to a banker aware of the matter, discussions with Sebi revealed that the regulator is not going to come out with any clarification in this matter. “Sebi wants mutual funds to evaluate by themselves if these decisions are in violation of the rules. Sebi will look at it only if rules are not followed," he said.
“The debenture trustee should have called a meeting of all the NCD holders. However this was not done," said Shardindu. Emailed queries to the debenture trustee did not elicit any response.
DHFL had delayed interest payments on some of its debt on 4 June, following which, credit rating agencies downgraded its debt to “D" (default). It subsequently made some payments, but delayed payments for a second time on 25 June. The housing finance company has also been making efforts to sell its assets to repay debt. However, market participants indicated that there was a limit to how far this strategy can take it.