By Mitali Salian

Dewan Housing Finance Corporation (DHFL) on Thursday submitted a resolution plan to lenders who have signed the the inter-creditor agreement (ICA). Mutual funds and other institutional bond holders have not signed the ICA. The resolution plan, however, is not final.

A senior banker explained that lenders have met with mutual funds to take into account their views. “While typically mutual funds do not formulate resolution plans, and this is the first for many lenders, it could take time,’ he said.
Sources have indicated to FE that lenders worked along with the company on the resolution plan and are
largely in consensus with the proposal.

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Two lenders, believed to be Kotak Mahindra and Corporation Bank,which are members of the consortium were yet to sign the ICA till late Thursday. However, sources indicated they are likely to sign up this week after some details are made available. The Reserve Bank of India has mandated that lenders sign an ICA while working on a resolution plan.

SBI Caps, company officials and bankers have been thrashing out details of the resolution plan almost every day for the last two months. Most lenders are of the opinion the plan will be shared and discussed with mutual funds and other institutional bond holders shortly.

The resolution plan seeks to utilise the monthly cash flows of Rs 2,300 crore from EMIs from consumers to repay retail investors. Nearly Rs 5,000 crore worth of bonds — institutional and retail — are maturing between August and September but the NBFC may seek an extension from institutional bondholders. If bankers agree, the surplus from the Rs 2,300 crore could be used to restart lending operations, after the mortgage player 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.

DHFL was lending Rs 4,000 crore a month before it was beset with liquidity problems and hopes to be able to lend Rs 1,500 crore a month once the issues are sorted out. 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.

The cash-strapped home loan financier 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. Mutual funds, who have an exposure of Rs 2,200 crore to DHFL via NCDs and Rs 180 crore of CP, are believed to have had a couple of rounds of conversation with the other lenders.