Mortgage lender may delay payments to bondholders amid ongoing talks with lenders on resolution plan
DHFL warns of delays in debt repayments amid negotiation with lenders on the resolution plan
Mortgage lender Dewan Housing Finance Corp. Ltd (DHFL) on Thursday warned of delays in debt repayments in the “immediate future" amid ongoing negotiations with lenders on the resolution plan.
“Given the ongoing discussions on the resolution plan with the lenders who have signed the inter-creditor agreement (ICA), the company believes its payment obligations falling due in the immediate future may not be met as per existing schedule," DHFL said in a regulatory filing.
An analyst who did not want to be named said DHFL, which has not been disbursing loans for the last couple of quarters after facing a severe liquidity crunch, plans to repay bondholders with the money it is receiving through repayments of loans from its borrowers.
The delay being referred to, the analyst said, is towards bondholders of the company.
The ongoing discussions among lenders are regarding loans of around ₹38,000 crore from banks that DHFL wants recast, with moratorium on repayments. That apart, mutual funds that have exposure to the company, are yet to sign the ICA.
State Bank of India has an exposure of about ₹10,000 crore to DHFL. Other lenders include Bank of India, Central Bank of India, Andhra Bank, Canara Bank, Punjab National Bank and Corporation Bank.
As of December, DHFL had an outstanding debt of ₹1 trillion, of which 38% was in the form of bank loans, 47% from the debt market and 10% through deposits.
According to Shweta Daptardar, an analyst at Prabhudas Lilladher, the moratorium, if approved, would help the company address the asset-liability mismatch problem. “The company also wants to restart its retail lending business," said Daptardar.
As Mint reported on 7 August, bondholders of DHFL have been asked by Catalyst Trusteeship Ltd, the debenture trustee, to communicate their acceptance of the inter-creditor agreement (ICA).
The email from Catalyst Trusteeship, reviewed by Mint, says three things about the ICA. First, it says that the ICA provides for a ‘standstill period’ for enforcement of any legal rights of any creditor. The ICA version on the website of Catalyst states that the standstill period will initially be for a 30-day review period and an additional 180 days thereafter.
Second, it says that the ICA lays down a voting arrangement between the creditors of the issuer, in respect of the resolution plan. Third, it says the ICA also provides for realization of liquidation value in the event the resolution plan (as approved by specified threshold of creditors of the issuer in accordance with the ICA), is not acceptable to a dissenting creditor.
On 6 August, DHFL said a panel set up by the stressed mortgage lender’s board has approved a debt resolution plan that seeks a moratorium on repayments but spares creditors from having to take haircuts on principal payments.
As part of the resolution proposal, which has to be now approved by its lenders, DHFL will seek funds from the National Housing Bank and other lenders to restart retail lending and take steps to address its asset-liability mismatch, the home financier said on Tuesday after the special panel reviewed the draft resolution plan formulated by the company in consultation with adviser EY. Lenders may still have to take a haircut as the DHFL statement is silent on interest payments.
Shares of DHFL on BSE closed at ₹47.6 on Thursday, down 3.64% from their previous close.
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