DHFL’s Proposal: Small Depositors, Investors To Be Paid In Time, Everyone Else Waits
Certain retail investors who participated in non-convertible debenture issuance by Dewan Housing Finance Corporation Ltd. and retail depositors will be repaid in time at contractual interest rates, according to the resolution plan proposed by the beleaguered housing financier.
Full repayment is applicable for investors and depositors with up to Rs 10 lakh outstanding. Any deposits or NCDs beyond Rs 10 lakh would be treated on a par with secured lenders, DHFL has proposed.
For non-retail NCD holders and banks that have extended term loans and other forms of credit, DHFL has proposed extended repayment periods, lowered interest rates and conversion of a part of their exposure in to long-term equity-like instruments.
BloombergQuint has reviewed a copy of the proposed resolution plan, which is currently under consideration by the creditors. The banks with exposure to DHFL and insurers have already signed an inter-creditor agreement to ensure a coordinated plan of action to resolve stress in the company. Mutual funds, which have invested in the NCDs, are yet to sign the agreement as they await approval from the market regulator.
The Resolution Plan
DHFL’s over Rs 85,000 crore liabilities are to be split into three portions, with each receiving different treatment and repayment schedule.
1. Loans To SRAs & Large Projects
For loans to slum rehabilitation projects, large project loans, inter-corporate deposits and some pass through certificates, where total liabilities are over Rs 36,000 crore, the housing financier has proposed that the repayment period be extended.
Among these liabilities, bank debt worth Rs 16,175 crore and public deposits worth Rs 4,162 crore will be repaid over 16 years, at 0 percent interest rate, the company has proposed. The repayments would also carry an eight-year moratorium on repayment of principal amount. A portion of these liabilities would be converted into long-term instruments like redeemable preference shares or unsecured debentures, the company said.
NCDs worth Rs 14,121 crore would be repaid over nine years with no interest payments either. In this case, the proposed moratorium is two years.
The company has also proposed conversion of Rs 1,764 crore worth debt to equity, which would ensure the lenders control 51 percent equity in the company. The conversion will be at a price of Rs 54 per share.
2. Loans To Other Projects
For projects and mortgages worth up to Rs 14,700 crore, the company has proposed an extended repayment period of eight years at 8.5 percent annual interest. This includes term loans worth Rs 570 crore received from banks and Rs 14,129 crore worth NCDs. Here too, the company has sought a two-year moratorium on repayment of the principal, which means repayments would only start after the moratorium.
3. Retail Loans & Related Pass Through Certificates
As per the proposed resolution plan, this portion of the liabilities includes public deposits and public NCDs up to Rs 10 lakh, non-retail NCDs and term loans from banks. These funds were used to generate retail loans and pass through certificates worth over Rs 34,000 crore.
The non-retail NCDs have been split into two, where NCDs worth Rs 2,599 crore would be repaid over 10 years at 0 percent interest, while NCDs worth 12,198 crore would be repaid over the same time horizon at an interest rate of 8.5 percent. Term loans worth Rs 14,726 crore would be repaid over 10 years at 10 percent interest per anum, while loans worth Rs 1,190 crore would carry a lower rate of 8.5 percent, as per the plan.
DHFL has been under financial stress since September 2018, after the debt market turned cautious towards housing and non-banking financiers, following the crash of Infrastructure Leasing & Financial Services. It has now completely stopped lending and has sought funding worth Rs 1,200-1,500 crore a month from its lenders to restart its operations.
In the past, DHFL has claimed it has repaid Rs 41,000 crore worth dues, which it achieved by selling its loan portfolio to other lenders. The stress in the company is currently being resolved under the Reserve Bank of India’s June 7 circular, which deals with restructuring debt. The lenders had signed the inter-creditor agreement in the first week of July, following which, they have 180 days to implement a resolution plan.
If they are unable to implement the plan within the timeline prescribed by the RBI, the banks would have to set aside higher penal provisions. DHFL cannot be resolved under the insolvency and bankruptcy code, since the code doesn’t cover financial companies.
Lenders have mulled an option to take over the company and run its lending business as a unit of the consortium. However, this option will be exercised only if all other avenues of turning around DHFL fail.