Mumbai: Lenders to Dewan Housing Finance Corp. Ltd (DHFL) are set to declare 65% of loans outstanding to the stressed mortgage lender as unsustainable, as part of a debt settlement plan, two people aware of the development said.
Of the total ₹24,700 crore of unsustainable debt, or the portion of loans that DHFL can’t service through its cash flows, ₹760 crore will be converted into equity at ₹54 per share, while ₹8,740 crore will be recast into unsecured debt that won’t generate any interest payments, one of the two people cited above said on condition of anonymity.
The remaining ₹15,200 crore of unsustainable debt will be converted into 10-year non-convertible debentures with a coupon rate of 6% and will be allocated to its lenders.
The ₹13,300 crore so-called sustainable component of bank loans will receive an annual interest of 8.5% and has to be repaid over eight years. The mortgage lender has a total bank debt of ₹38,000 crore as on 31 December, according to the latest available investor presentation.
DHFL was one of the worst-hit by the crisis faced by non-bank lenders after Infrastructure Leasing and Financial Services Ltd defaulted on payments last year. The defaults increased the cost of funds and made it tougher for the shadow lender to borrow from banks and the bond market. Without access to fresh funds, DHFL’s lending business ground to a halt with no fresh disbursements.
The resolution plan for the mortgage lender is being prepared based on the 7 June circular of the Reserve Bank of India (RBI).
“We will have to take a hit on the unsustainable portion of the debt if this plan is implemented," said the first banker, adding that the resolution plan will be finalized by the month-end. He explained that if shares are converted at ₹54 and the market price is lower, lenders will take a hit on a mark-to-market basis. Shares of DHFL plunged nearly 13% to ₹39.70 on BSE on speculation that lenders may take a majority stake in the mortgage lender by converting debt into equity.
Earlier this month, DHFL said that its draft resolution plan submitted to lenders spares creditors from having to take haircuts on principal payments.
The second banker said lenders to DHFL plan to infuse fresh funds of ₹500 crore every month for six months into DHFL to help restart its retail lending business. “We are also looking to take a majority stake in the company following the debt-to-equity conversion. As part of the resolution plan, we have shortlisted candidates for the post of chief executive and chief financial officer," the banker said on condition of anonymity.
Rajkiran Rai G., managing director and chief executive of Union Bank of India, the leader of the lenders’ consortium, said on Tuesday that the resolution plan has to go through scrutiny and everybody has to approve and see if there needs to be any changes. “The only thing I can say is that the resolution plan which is under discussion can be the best plan under the given circumstances," said Rai.
According to RBI’s 7 June circular, 75% of lenders by value of the total outstanding credit facilities to a stressed company and 60% by number must agree for an inter-creditor agreement to be binding on all lenders.
The State Bank of India has an exposure of about ₹10,000 crore to DHFL, the bank’s chairman Rajnish Kumar told shareholders at its annual general meeting in June.
Other lenders to DHFL 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 debt markets and 10% through deposits.
Emails sent to DHFL and to Union Bank of India remained unanswered till the time of going to press.