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DHFL’s assets under management are at  ₹1.19 trillion, of which  ₹63,690 crore are retail loans. (Pradeep Gaur/Mint)
DHFL’s assets under management are at 1.19 trillion, of which 63,690 crore are retail loans. (Pradeep Gaur/Mint)

Lenders look to repay FD holders of ailing DHFL

  • Lenders are looking at various scenarios to distribute the proceeds of the funds received from the new investor

Lenders to troubled Dewan Housing Finance Ltd (DHFL) are looking at a repayment strategy for 55,000 fixed deposit (FD) holders as part of a resolution plan.

According to the minutes of a meeting of the committee of creditors (CoC) held last week, the lenders are looking at various scenarios to distribute the proceeds of the funds received from the new investor. This includes distribution under the waterfall mechanism or under pari-passu distribution mechanism or setting aside some amount of the outstanding claims for small investors.

According to the waterfall mechanism under the Insolvency and Bankruptcy Code (IBC), secured creditors have to be paid fully before any payments can be made to unsecured financial creditors, who in turn, have priority over operational creditors. The pari-passu distribution mechanism gives equal priority to all creditors, and the proceeds are distributed in proportion to their debt.

Most lenders, however, favour a distribution plan where the CoC sets aside 5% of the claim amount for small investors (with investment up to 10 lakh), unsecured financial creditors and operational creditors, with the remaining resolution amount being distributed across secured creditors under the waterfall mechanism. The consensus of all CoC members is not final as lenders remain divided over how much amount should be allocated to unsecured financial creditors that represents a small portion of CoC voting share.

Catalyst Trusteeship Ltd (CTL), which represents retail bondholders of DHFL, said that unsecured financial creditors are unlikely to oppose the distribution mechanism as there is some amount set aside for them.

“The legal counsel further discussed certain legal precedents with respect to distribution mechanism in other IBC cases and mentioned that Section 53 of the Code provides a base principle for the manner of distribution, but CoC in its commercial wisdom and discretion can provide for a different manner of distribution as long as the key legal principle of equity is not violated and other mandatory contents of Section 30 of the code are complied with," according to the minutes of the meeting, a copy of which was reviewed by Mint.

According to the minutes, the representative on behalf of the FD holders, on the other hand, have requested the CoC to consider payment of the entire claim amount of the FD holders on socio-economic grounds or upfront payment of the amount set aside by the CoC.

It also said that in the event the distribution mechanism and the resolution plans are put to vote together, and the resolution plan is approved by the CoC, but the distribution plan is not approved, then the lenders will follow the waterfall distribution mechanism.

Last week, DHFL’s CoC received revised bids from Adani Group, Piramal Enterprises, US-based Oaktree Capital and Hong Kong-based SC Lowy to either pick a stake in the company or buy out its assets.

Oaktree Capital raised its bid for the entire portfolio to 31,000 crore from 28,000 crore earlier, while Piramal Enterprises raised its bid for the retail portfolio to 26,000 crore from 15,000 crore earlier. Adani has offered 2,700 crore for the wholesale and SRA book (which comprises loans to projects being developed for Slum Redevelopment Authority) compared to 2,200 crore earlier, while SC Lowy has raised its bid for the non-SRA book to 2,300 crore from 1,500 crore earlier, the people said.

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