DHFL’s Creditors Lay Down Eligibility Rules For Bidders

Financial creditors to Dewan Housing Finance Corporation Ltd. have finalised the eligibility criteria for applicants looking to submit resolution plans for the housing finance company under the insolvency framework.

The Reserve Bank of India-appointed administrator for DHFL released a newspaper advertisement on Tuesday, inviting expressions of interest from interested bidders. The last date for submitting EoIs has been set at Feb. 17. Details of eligibility criteria have been posted on DHFL’s website.

As per the terms set by the financial creditors, the company will be split into three parts—retail, wholesale and slum rehabilitation projects. Bids will be accepted from investors who might be looking to buy the company as a whole, or in parts. The decision to allow bidders to submit resolution plans even for parts of DHFL’s business is expected to help draw in a wider set of potential bidders.

Along with the retail assets, lenders will also sell investments, unsecured loans and fixed assets. In the case of wholesale assets, the bidder will also be allowed to take over inter-corporate deposits as well.

The eligibility criteria has been structured keeping in mind the fact that different investors may choose to bid for different parts of the business.

Strategic Investors

Eligible strategic bidders must meet the following minimum net worth criteria to bid for the assets.

• Minimum net worth required to bid for the whole company: Rs 3,500 crore
• For only retail assets: Rs 3,500 crore
• For wholesale assets: Rs 1,500 crore
• For slum rehabilitation projects: Rs 500 crore

Financial Investors

Financial investors must fulfil two levels of eligibility criteria to be able to bid for the assets. One is a minimum assets under management and the other includes minimum funds committed to be deployed in India.

• Minimum AUM to bid for the whole company: Rs 10,000 crore
• For retail loans: Rs 10,000 crore
• For wholesale loans: Rs 4,000 crore
• For slum rehabilitation projects: Rs 1,500 crore

In terms of minimum committed funds:

• Minimum committed funds to bid for the whole company: Rs 3,500 crore
• For retail loans: Rs 3,500 crore
• For wholesale loans: Rs 1,000 crore
• For slum rehabilitation projects: Rs 1,000 crore

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

According to the terms posted by financial creditors, bidders must also qualify under Section 29A of the Insolvency and Bankruptcy Code (IBC), which prohibits loan defaulters, related parties and parties acting in concert with promoters from participating in the process. The potential resolution applicants should also meet the ‘fit and proper’ criteria applied by the RBI to investors in financial services.

For investors bidding in a consortium, at least one of the members must hold or propose to hold at least 26 percent of total equity participation or economic interest in the consortium. All other members would need to have a minimum stake of 10 percent each.

The committee of creditors will finalise the list of prospective bidders on March 2. The shortlisted applicants will be allowed to conduct due diligence and submit a final bid by April 16.

DHFL has a loan book of over Rs 80,000 crore and has been facing liquidity stress since October 2018. The collapse of Infrastructure Leasing & Financial Services Group and the consequent liquidity crunch worsened conditions for the housing financier which was already weighed down by governance concerns.

In July 2019, lenders to DHFL signed an inter-creditor agreement to finalise a resolution plan. Even at that time, lenders had decided to split the company’s loan book into three parts and sell it to prospective bidders. That plan had proposed a structure when lenders would hold the loans under a trust-like structure till they find bidders for each part. However, RBI did not approve this.

Also Read: DHFL Insolvency: Indiabulls Firms Move NCLT To Secure Assigned Loans

On Nov. 20, the RBI stepped in and superseded the company’s board. The regulator then referred DHFL for insolvency under a newly introduced window for non-bank lenders under the IBC. R Subramaniakumar has been appointed as the administrator to manage the company’s daily affairs. The administrator is advised by consulting firm EY and legal firm AZB & Partners.