DHFL Resolution: Board paves way for ownership change, debt to convert to equity

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Published: August 31, 2019 6:03:17 AM

In a statement, the company said, “Conversion of the whole or part of the debt into equity shares or other securities of the company in accordance with the applicable law with the price of such conversion being in line with the applicable laws and which may result in a change in ownership of the company.”

DHFL Resolution, Resolution Plan, cumulative preference shares, working capital, equity shares, DHFLThe board gave its consent to a raise in authorised share capital to Rs 1,090 crore from Rs 828 crore, led by a proposed rise in value of equity shares to Rs 840 crore from Rs 578 crore.

Stressed lender Dewan Housing Finance Corporation’s board on Friday passed an enabling resolution that will pave the way for the conversion of a part or whole of its debt into equity or other securities of the company. The company indicated that this would also lead to a change in ownership of the company. FE had reported on August 19 that Kapil Wadhawan would in all likelihood step down as chairman and managing director of the cash-strapped home loan financier with his stake coming down to less than 10%.

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In a statement, the company said, “Conversion of the whole or part of the debt into equity shares or other securities of the company in accordance with the applicable law with the price of such conversion being in line with the applicable laws and which may result in a change in ownership of the company.” The board gave its consent to a raise in authorised share capital to Rs 1,090 crore from Rs 828 crore, led by a proposed rise in value of equity shares to Rs 840 crore from Rs 578 crore.

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Meanwhile, 25,00,000 non-convertible redeemable cumulative preference shares of Rs 1,000 each, aggregating Rs 250 crore, remain unchanged. The board also gave its nod to an amendment to the memorandum of association or articles of association of the company for alteration in share capital and appointment of nominee directors.
As per existing rules, the rate for conversion of debt to equity would be determined by an average of the high and low stock prices for the six months prior to the deal. Based on existing price data available on Bloomberg, the six-month average works out to be Rs 98.62. A fund manager, who has invested in debt instruments of DHFL, said, “Since the conversion price is at higher level than the current market price, there are two options in front of company. First, borrowers and lenders can ask market regulator to give them a one-time exemption in this case. The second option is that lenders can wait another six months, so that the average conversion price comes down and they could complete the deal.” The fund manager further stated they have already written off their exposure in DHFL and do not expect any major recovery.

The exchange note, signed off by Kapil Wadhawan, further stated, “The board expanded the terms of reference of the Special Committee for Resolution Plan to include the finalisation of the terms of conditions of the various measures and actions contemplated by the resolution plan as stated above, and to sign/execute necessary documents to give effect to the resolution plan.”

The board also took note of efforts made towards identification of ‘development managers’ to some of the major projects that could enhance progress of the projects through infusion of working capital, which the aforementioned managers arrange for, the note stated.

The company’s board also approved the amendment to the notice of the 35th Annual General Meeting to include the relevant resolutions, which is scheduled to be held on September 28, 2019.

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