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Wednesday, December 11, 2019

Banks for speeding up DHFL debt recovery

DHFL’s total liabilities are Rs 83,873 crore, as per its draft resolution plan. Of this, it owes banks Rs 27,527 crore, NCD holders (including retail investors, mutual funds and others) Rs 41,431 crore, NHB Rs 2,350 crore and ECBs Rs 2,747 crore. The exposure of banks could be about Rs 38,000 crore.

Written by Sandeep Singh , George Mathew | Mumbai, New Delhi | Published: November 30, 2019 2:42:04 am
Dewan Housing Finance Corporation SBI Chairman Rajnish Kumar recently said many suitors are expected for DHFL as “it’s a good franchise”.

With the Reserve Bank of India (RBI) taking Dewan Housing Finance Corporation Ltd (DHFL) to the National Company Law Tribunal, banks that are saddled with huge non-performing assets (NPAs) are hoping to complete the resolution within the current financial year — by March 2020.

Two sources close to the development told The Indian Express that both the RBI and State Bank of India are confident of completing the resolution of DHFL through the NCLT mechanism as the formalities of the debt resolution are expected to be speeded up, considering the debt of Rs 83,873 crore that DHFL owes to banks, mutual funds and investors. Banks which were getting ready to declare DHFL accounts NPAs are not keen to show higher slippages in the remaining months of the fiscal.

SBI Chairman Rajnish Kumar recently said many suitors are expected for DHFL as “it’s a good franchise”. SBI is learnt to be confident about the completion of resolution as several private equity players along with some NBFC players, including Adani group, reportedly showed interest in DHFL and either of them may take up at least 26 per cent stake in DHFL.

“It is possible to fast-track and complete the resolution of DHFL over the next three to four months as the draft resolution plan prepared and submitted earlier in August-September 2019 can be taken up and submitted with some tweaking. Bankers and all stakeholders had signed the inter-creditor agreement and they were onboard with the resolution plan,” the source said. The Committee of Creditors will have to identify suitors and approve the resolution plan. “The success will hinge on the response from potential bidders who may ask for the financial details of the firm,” said an official of a nationalised bank.

“There is a 330-days timeline that is also extended timeline. Otherwise, normally it should happen in 180 days that is the intent of the process,” Kumar said.

The resolution plan prepared in September 2019 has put an assumed price of Rs 54 per share for debt conversion into equity by lenders to acquire 51 per cent stake in the company and all secured lenders have been treated at par. However, banks are unlikely to convert the debt into equity at this stage as the share price has fallen to Rs 19.85 on the bourses.

DHFL’s total liabilities are Rs 83,873 crore, as per its draft resolution plan. Of this, it owes banks Rs 27,527 crore, NCD holders (including retail investors, mutual funds and others) Rs 41,431 crore, NHB Rs 2,350 crore and ECBs Rs 2,747 crore. The exposure of banks could be about Rs 38,000 crore.

However, since NCLT requires that the administrator has to also be a licensed resolution professional and, in this case, the administrator is not a licensed professional, the RBI and SBI will have to address that same, the source said. The RBI has appointed R Subramaniakumar, former MD and CEO of Indian Overseas Bank, as administrator to run the firm.

Another source said since EY worked on the draft resolution plan, it is possible that they may be roped in as the RP in the case.

However, a top source in the financial sector raised doubts about the possibility of a white knight coming in to salvage the company without a huge haircut by lenders and other investors. “The liabilities of DHFL are huge. They were defaulting on repayments. It is to be seen whether good bidders with deep pockets will come forward with a proposal which is suitable to the lenders. How much haircut the lenders will accept is also to be seen. Banks dilly-dallied and delayed resolution of Jet Airways. There has been no recovery in Jet. In the case of IL&FS, the board talks about 50 per cent by March 2020,” he said.

On November 15, the government paved the way for resolution of financial service providers through the NCLT mechanism under the Insolvency and Bankruptcy Code as the Ministry of Corporate Affairs notified Section 227 of the Insolvency and Bankruptcy Rules, 2019 to provide “a generic framework for insolvency and liquidation proceedings of systemically important FSPs other than banks”.

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