Dewan Housing has put out a resolution plan which will be voted by the committee of creditors. We don’t have complete liability tenor & coupon profile, but aggregate haircut will be between 28-37% for discounting rate between 9-12%; bulk of losses are in the SRA and other loans at 60% or higher. Banks/AMCs have taken 30-50% MTM hit on bonds, so incremental provisioning needs should be small, but NPL provisions will come later.
Resolution plan: Assets (cash inflow sources) have been pooled in three buckets. Bucket #1 of Retail loans (Rs 352 bn, 39% of gross o/s), Bucket #2 of Project & Mortgage loans and part of securitized loan book (Rs 214 bn, 24% of gross o/s), and Bucket #3 of Other project loans including slum rehabilitation (SRA) loans, Inter-corporate deposits (ICDs) (Rs 328 bn, ~37% of gross o/s), etc. Management estimates cash flows from the first two buckets to accrue at 8.5% p.a (65% of receivable) but near negligible accrual rate for the third bucket, indicating elevated credit risk associated with the third bucket.
Asset earmarking: The resolution plan earmarks the cash flows from the three asset buckets to specific debt categories (bank loan, NCD tranche, etc.). Discounting the assigned cash flows at 10% (or a range of 9-12%) suggests implied haircut at 31% on avg., (or in a range between 28-37%) for the lenders. A delay in cash inflows or a lower than expected recovery could further increase the haircut for lenders. Surprisingly, both retail and project loans which are 63% of the outstanding debt (or 65% of cash inflows) will have a much lower haircut (10% or less), while the aggregate of ICDs and SRA will have a haircut of 60% or higher.
Instrument basis: Across a broad category of instruments, the “public deposit” will likely have an aggregate haircut of 5% (or lower depending on the discount rate), while perpetual debt, commercial papers and subordinate debt will have a haircut closer to 60% or higher. Banks term-loans, NHB refinance and NCDs will take losses of around 30%.
