Lenders In Talks With Private Equity Funds To Sell DHFL’s Retail Business: Exclusive

The State Bank of India-led lender consortium reached out to these investors—including AION Capital, Cerberus Capital Management and Broad Peak Capital Advisors—this month after their previous attempts to find a bidder for the housing financier failed to yield any result, the people cited earlier told BloombergQuint on the condition of anonymity as the conversations are confidential.

The lenders, under the Insolvency and Bankruptcy Code, have been considering splitting the company’s loan book into retail, wholesale and slum rehabilitation projects to find more bidders, and sell each at different prices. To be sure, previous attempts to split DHFL’s book and finding bidders didn’t get the Reserve Bank of India’s approval as lenders had sought to convert debt to equity and control the company under a holding structure till it was sold.

Eventually, the RBI superseded the housing financiers’ board in November and referred it to the IBC in the same month after the government tweaked the insolvency code to allow resolution of financial services companies under it. Lenders to DHFL now expect to find a resolution for the stressed company under the bankruptcy law.

Currently, DHFL has retail home loans worth more than Rs 35,000 crore and warehouses Rs 30,000 crore worth of loans securitised and sold to other lenders, the first of the two people cited earlier said.

The talks are focusing on the fundamentals of DHFL’s retail business and the repayment history of the borrowers that the company services, the first person said. The lenders are hoping to sell the retail business at a premium as it has low delinquencies and is spread across India, the person said, adding the other two parts of the loan book would be sold at a discount, owing to higher rates of delinquencies.

BloombergQuint awaits replies from Broad Peak Capital and SBI, while AION Capital and Cerberus Capital declined to comment. The RBI-appointed administrator for DHFL, R Subramaniakumar, too, didn’t return calls or respond to messages.

DHFL has been facing liquidity crisis since the shock defaults at IL&FS Group subsidiaries triggered a funding freeze among non-bank lenders. Lending had come to a standstill and its wholesale borrowers, comprising real estate developers, had unable to meet their repayments, leading to further stress in its loan book.

More than 55,000 fixed deposit holders have claims worth more than Rs 4,500 crore against DHFL. And financial and operational creditors had submitted claims worth Rs 87,000 crore.

While the administrator to DHFL is in the process of assessing the claims, the committee of creditors is finalising the terms of engagement for bidding under the IBC. The creditors, according to the people cited earlier, have decided that a prospective bidder must have at least Rs 3,500 crore in net worth to be eligible to bid. The bidding details are yet to be released. After this, the administrator will seek expressions of interest from prospective bidders.

Meanwhile, lenders to DHFL agreed to restart lending operations at the rate of Rs 500 crore a month. That prompted the fixed deposit holders to move the Supreme Court seeking release of their deposits. The apex court reserved its order on the plea, saying it wouldn’t like to interfere in the resolution process but would see what it can do for the depositors.