Mutual funds try to get in on $894 million in DHFL repayments

Asset managers in India are seeking regulatory approval to join creditors as one of the nation’s major shadow lenders tries to pull itself out of distress.

A body of mutual funds has written to the Securities & Exchange Board of India seeking clarity on whether they can participate in an inter-creditor agreement drafted by banks who have lent to Dewan Housing Finance Corp.

The financier has about 63 billion rupees ($894 million) of principal and interest repayments on rupee bonds due in August and September to mutual funds, insurers and pension funds. Dewan didn’t service most of its financial obligations last month and its credit rating has been cut to D by major Indian ratings agencies.

The mortgage lender is among the worst hit in the nation’s $42 billion shadow banking industry, which started to see cracks emerge just over a year ago with debt repayment problems at a major infrastructure financier. Strains at Dewan started surfacing at the end of January, prompting the company to sell assets including a mutual fund and education loan company.

Key Points:

• Lenders to Dewan are keen that mutual funds, one of the key investors in the company’s debt, sign the pact to ensure that all creditors are on the same page. That will lead to a quicker resolution than dealing with each set of investors separately.
• The insurance regulator has given its approval for insurers to join the agreement made by banks, central bank Deputy Governor N.S. Vishwanathan said in a press conference on Wednesday.
• According to Reserve Bank of India guidelines, the signing of the inter-creditor agreement by all lenders is mandatory as it provides for majority decision-making.
• Dewan has drafted a resolution plan, which was announced this week after discussions with financial adviser Ernst & Young.
• The draft proposal, which is yet to be submitted to creditors, includes proposals like no haircut on principal, moratorium on repayments and securing funds from banks to restart retail lending.