Amid multiple twists in DHFL saga, big haircuts are set to hit its lenders2 min read . Updated: 17 Nov 2020, 09:26 PM IST
- Irrespective of who acquires DHFL, creditors are facing not less than a 70% haircut
- A potential buyer is unlikely to cough up a big sum to DHFL’s lenders as upfront repayment
It has almost been a year since troubled Dewan Housing Finance Corp. Ltd (DHFL) was thrust into insolvency proceedings—the first financial firm to be under the code.
The committee of creditors has held 11 meetings so far and a 12th was on at the time of writing this piece. The latest meeting comes in the wake of a surprise bid for DHFL.
An Adani Group company now wants to buy DHFL lock, stock and barrel for an amount higher than the highest bid of ₹31,000 crore made by Oaktree Capital so far, according to a Mint report.
The company, which originally wanted to buy just the wholesale loan book of DHFL for about ₹3,000 crore, submitted its revised bid after the deadline was over.
DHFL’s promoter has also offered to pay 100% of the principal amount of bank loans and also to other financial creditors. Kapil Wadhawan, currently in prison on charges of financial wrongdoing, has said that bids so far do not capture the actual value of the financier.
To be sure, lenders had asked bidders to revise their offer in an October meeting.
After all, at the heart of the insolvency law is the principle to get the maximum value for an asset under sale.
This is as good as it gets for lenders in terms of recovery from DHFL. There are multiple reasons for this.
Since DHFL went into insolvency, the covid-19 pandemic hit businesses and lenders all over India. Even DHFL saw about 28% of its loans go under moratorium as of June, and collections have fallen.
The real estate sector is still struggling to recover and stress on developer books continues. It is natural that bidders will be careful in their valuations of a lender that has a troubling record of corporate governance.
A forensic report by Grant Thornton had found several unexplained transactions in DHFL’s books.
What’s more is that a potential buyer is unlikely to cough up a big sum to bankers as upfront repayment.
Indeed, the plans from the four bidders have only a small percentage as upfront money. Much of what banks may recover would be staggered and given out of revenue generated by the company over time.
“Whoever invests in DHFL is not going to settle with creditors upfront in a big way. Most of the plans involve staggered repayment to lenders from the firm’s internal accruals," said a consultant, requesting anonymity.
Perhaps, lenders know this and are getting ready to select one bidder among the four instead of asking for more.
To whichever company DHFL goes, creditors are facing not less than a 70% haircut. Considering the provisions banks have made against their DHFL exposure, it seems they have made peace with it.