DHFL’s Draft Resolution Plan Seeks Moratorium, Fresh Funds For Lending
The DHFL resolution plan seeks fresh funds from banks and the National Housing Bank to restart lending activities.
Dewan Housing Finance Corporation Ltd. has submitted a draft debt resolution plan as the beleaguered home financier struggles to repay lenders.
As part of the plan, the company is seeking a moratorium on repayments and fresh funds from banks and the National Housing Bank to restart lending activities, according to an exchange filing. The plan does not include any haircut for lenders, the company said.
The DHFL draft resolution plan includes breaking up the company’s loan book into three parts, a person aware of the matter told BloombergQuint. The first will be the retail loans, which are sustainable. The second will include project as well as mortgage loans, which have shown signs of initial stress. In this part, the repayment will be based on an internal rate of return. And the third part of the portfolio will be converted into long-term equity like instruments to ensure these loans go off the company’s books, the person said requesting anonymity as the information is not public yet.
Lenders will now assess the DHFL resolution plan and negotiate better terms with the housing financier, which owes more than Rs 50,000 crore to banks. Last month, the lenders signed an inter-creditor agreement under the Reserve Bank of India’s June 7 circular to help restructure DHFL's debt. After this, the lenders have 180 days to finalise and implement a resolution plan.
Shares of the non-bank finance company closed 32 percent higher, the most in over a decade, to Rs 55.35 apiece.
Auditor Resigns
Separately, DHFL informed stock exchanges that one of its joint statutory auditors Deloitte Haskins & Sells LLP had tendered its resignation with immediate effect.
The auditors, in a review of the company’s quarterly financials, had raised doubts about DHFL’s ‘going concern’ status.
They had also listed six qualifications including significant deficiencies in the grant and rollover of Rs 5,652 crore of inter-corporate deposits. In addition, the auditors said they have failed to obtain sufficient appropriate audit evidence to support the fair value ascribed to a pool of loans and pass-through certificated. As part of its quarterly earnings, DHFL had said that it had marked-down the fair value of a pool of wholesale loans by Rs 3,253 crore to Rs 31,628 crore.
The Backdrop
DHFL has been facing liquidity issues since September after payment defaults at IL&FS Group subsidiaries triggered a liquidity crisis among non-bank financial companies. Banks and mutual funds have been hesitant in lending to stressed NBFCs and housing finance companies.
DHFL has also delayed repayments to its bondholders owing to the liquidity problems. Earlier, the company said it has made repayments worth more than Rs 41,000 crore since September. These repayments, however, were primarily aided by sale of loan portfolios to banks under securitisation deals.
The company is also seeking equity infusion from potential investors, including private equity investors. While certain investors had discussions with lenders and the DHFL’s management, a binding term sheet is yet to be submitted.