Beleaguered DHFL may convert loans into equity to stay afloat

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Updated: August 28, 2019 7:16:30 AM

The plan further proposes the remaining Rs 15,200 crore of unsustainable debt could be converted into 10-year non-convertible debentures with a coupon rate of 6% and allocated to its lenders.

According to a report in a business daily, lenders to DHFL may declare 65% of loans outstanding to DHFL as unsustainable.

With a solution to its problems nowhere in sight, the near-bankrupt DHFL (Dewan Housing Finance Corporation) on Tuesday said it would consider converting loans into equity. The NBFC’s board is set to meet on August 30 to discuss the proposal.

The resolution plan, awaiting a sign-off from a few categories of lenders, has reportedly pencilled in a new management team. Bankers, it is understood, want Kapil Wadhawan to step down as chairman and managing director of DHFL; moreover, they want him to reduce his stake to below 10%. The promoter, bankers familiar with the plan said, would also be required to pledge a part of their remaining stake to lenders (which would be below 10%). The promoter group holding in DHFL is 39.21%.

Other terms of the resolution plan include the transfer of bad debt into a fresh entity or a conversion into a new instrument. This so-called ‘bad’ debt — Slum Rehabilitation Authority loans and developer loans could get converted to an equity, or semi-equity instrument like Cumulative Redeemable Preference Shares (CRPS). Thereafter, part of the good debt within DHFL could also further get converted to equity from debt.

According to a report in a business daily, lenders to DHFL may declare 65% of loans outstanding to DHFL as unsustainable. Of the total Rs 24,700 crore of unsustainable debt, or the portion of loans that DHFL is unable to service through its cash flows, Rs 760 crore will be converted into equity at Rs 54 per share, while Rs 8,740 crore will be recast into unsecured debt that won’t generate any interest payments.

The plan further proposes the remaining Rs 15,200 crore of unsustainable debt could be converted into 10-year non-convertible debentures with a coupon rate of 6% and allocated to its lenders.

An exchange notice by the company said, “We wish to inform that a meeting of the board of directors of the company is scheduled to be held on Friday, 30th August, 2019, inter-alia, to consider and approve the proposal for issuance of equity shares and/or other securities of the Company including by way of preferential issue, pursuant to a conversion of debt to equity under the proposed resolution plan, or any other permissible mode or a combination thereof through issue of prospectus and/or placement document and/or letter of offer and/or any other permissible/requisite offer document, and/or alteration of terms of existing securities of the company.”

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