Mutual funds, who have an exposure of Rs 2,200 crore to DHFL via NCDs and Rs 180 crore of CP, have had a couple of rounds of conversation with the other lenders.
Stressed housing finance major Dewan Housing Finance Company (DHFL) has shared its resolution plan with bankers and company sources claim that the lenders are in sync with the plan. The plan will be formally presented to the banks later this week and to bondholders on July 25. In its resolution plan, the housing finance company has proposed that its debt be recast. The cash-strapped lender has a cumulative debt of Rs 1 lakh crore, of which it owes Rs 38,000 crore to banks and Rs 34,000 crore to bondholders.
As far as repayment to retail investors is concerned, the resolution plan seeks to utilise monthly cashflows of Rs 2,300 crore it receives in the form of EMIs from consumers to repay the retail investors upon maturity. Lenders have to give their blessing to this proposal. Nearly Rs 5,000 crore worth of bonds (institutional and retail) are maturing between August and September 2019. Extension of maturity may be sought from institutional bondholders. If bankers agree, the surplus money from this Rs 2,300 crore could be used to restart lending operations, after the mortgage major has repaid retail investors.
DHFL has also sought a moratorium on payments till its cash flows stabilise and operations resume. While it is seeking a moratorium on some part of its debt, it is also asking lenders to allow it to defer payment of the principal. The plan envisages that lenders will maintain the same interest rate on loans at which they were disbursed.
The company has also asked for a fresh line of credit from banks to restart lending operations. It has been proposed in the plan that DHFL be given short-term finance (duration of one year) to restart lending operations. The lender would then at the end of the year securitise the debt back with the same banks.
Before getting into trouble, DHFL was lending Rs 4,000 crore a month. The company is now hoping to return to lending Rs 1,500 crore a month. Any resolution plan would be effective if the company’s business operations resume. Lending operations have completely come to a standstill and the company’s employee strength is down from 11,000 to 9,000. Operations have shrunk ever since it got into trouble and defaulted on its commitments to lenders.
Mutual funds, who have an exposure of Rs 2,200 crore to DHFL via NCDs and Rs 180 crore of CP, have had a couple of rounds of conversation with the other lenders. Given that the market regulator has frowned upon standstill agreements with promoters, the fund houses have been in a quandary over agreeing to a moratorium and allowing deferred payments by stressed promoters. A Balasubramanian, CEO of Aditya Birla Sun Life AMC, says, “Any decision has to take into account systemic risk and interest of investors over the long-term. Any resolution plan that takes into account these should ideally find support.”
Senior sources with asset management companies say that the Association of Mutual funds in India (Amfi) had a meeting on the issue, but it remained inconclusive. The head of fixed income from the leading fund house, on condition of anonymity, said, “Right now we don’t have any other option in front of us. In order to get quick resolution to this issue, we need to go with banks and sign the inter-creditor agreement (ICA). We are even ready for a haircut, but for that we first need assurance on how future payments will be made by the company.”
The company is also in talks with Aion Capital and Cerebrus Capital, among others, to divest a part of the promoter group’s stake. Interested players have done the due dilligence, but until a resolution plan is approved by lenders, any stake sale would not be possible. Promoters collectively hold 39.21% in DHFL and are looking to raise nearly Rs 7,000 crore ($1 bn) from interested investors.