DHFL’s New Resolution Plan Offers To Repay Lenders Over 10-20 Year Period

Dewan Housing Finance Corporation Ltd. has filed a draft resolution plan through which its creditors will be repaid over the next 10 to 20 years from receivables the company will earn from its loan assets. If the resolution plan is accepted by its lenders, DHFL’s creditors will own a 51 percent stake in the company against their combined debt exposure of close to Rs 84,000 crore.

The housing finance company has been mired in a liquidity crisis since September 2018, in the aftermath of the collapse of the Infrastructure Leasing and Finance Services Group. This is the second draft plan proposed by the company to its lenders. The first resolution plan was rejected by lenders, BloombergQuint reported on Sept 18.

As per the new draft resolution plan filed with stock exchanges on Sept. 28, the company has proposed each lender, depending on the type of debt instrument provided to DHFL, will receive an equity stake of 2.3 percent in the company at a price of Rs 54 per equity share.

DHFL held a meeting on Sept. 27 to present the plan to all its institutional, creditors including banks, financial institutions, mutual funds, insurance companies and other institutional bond holders.

On Sept. 28, Vaijinath M Gavarshetty, former Chief General Manager of State Bank of India has been appointed as DHFL’s chief executive officer effective Oct. 1, based on the recommendations of the board’s Nomination & Remuneration Committee,

Repayment Roadmap

The revised draft resolution plan states that the company will use cash proceeds from loan assets over the next 10 to 20 years to repay its creditors by issuing pass-through-certificates or securities.

All retail and whole-sale loan assets of the company will be mapped against the securities it will issue. This will yield interest payments to the lenders, investors and depositors every month, the plan proposes.

The first category of debt worth over Rs 34,800 crore will be repaid through inflows from the company’s retail assets, where the projected cash inflow stands at over Rs 52,600 crore by financial year 2034-35.

“Public deposits payable till Oct 31, 2019, have been assumed to be paid with existing interest rates. The balance PDs are proposed to be restructured over 10 years with NIL interest,” according to the plan.

Similarly, the proceeds from DHFL’s project loan assets will be used repay around Rs 12,000 crore of debt at a proposed internal rate of return of 8.50 percent. The plan pegs the projected cash flow from these set of loans at over Rs 21,000 crore over the next 10 years.

Additionally, another Rs 35, 326 crore of the company’s remaining debt is proposed to be repaid from around Rs 39,000 crore worth of cash expected to flow from other lines of credit and project loans provided by DHFL.

This proposed resolution plan, including all projections, cash flows and computation of liabilities, was based on reports received from various consultants appointed by lenders and the company, it said. The cash flow projections factored for the proposed resolution plan do not take into account any tax impact that might occur, in the hands of borrowers.

The plan is subject to approval by DHFL’s creditors and investors.

Debt Exposure and Loan Assets

While banks have a Rs 27,527 crore debt exposure to the company in terms of loans, they also hold Rs 10,815 crore worth of DHFL’s non-convertible debenture papers.

As of July 6, 2019, the housing finance company had close to Rs 90,000 crore of loan assets on its balance sheet, including Rs 35,000 crore in retail-loan assets and over Rs 35,000 crore worth of project and mortgage loans.

On Friday, DHFL share price closed at Rs 42.25 on the Bombay Stock Exchange.