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Friday, November 27, 2020

Explained: What the fresh Adani Group offer means for DHFL bidding process

The Adani Group's bid is now higher than other offers for Dewan Housing Finance Limited, which is undergoing a corporate insolvency resolution process.

Written by Aashish Aryan , Edited by Explained Desk | New Delhi | Updated: November 18, 2020 1:08:11 pm
DHFL, Adani group, Adani group DHFL offer, DHFL bidders, Piramal Enterprises, Oaktree, SC Lowy , DHFL lenders, Dheeraj Wadhawan, Kapil Wadhawan indian express, express explainedTill November 9, which was the last date for submission and revision of offers for DHFL, Piramal Enterprises, the US-based Oaktree, Adani, and Hong Kong-based SC Lowy had submitted bids. (File)

The Adani Group sprang a surprise last week by announcing it would buy all the assets of debt-laden Dewan Housing Finance Limited (DHFL), for a little over Rs 31,000 crore. The Adani Group’s bid is now higher than other offers for the company, which is undergoing a corporate insolvency resolution process (CIRP). It is also likely to force the lenders to call for fresh bids for the company.

What is the case against DHFL?

On November 29 last year, the Reserve Bank of India (RBI) filed an application for initiation of insolvency against DHFL, which was a non-banking financial company (NBFC). DHFL is the first NBFC to undergo insolvency resolution, which was triggered after reports of funds mismanagement at the company surfaced.

Most NBFCs do not have any physical assets so to speak, and the CIRP is initiated under a new resolution framework brought out by the government. Since the RBI is the regulator for all banking institutions in India, it was also the petitioner which had approached the Mumbai bench of the National Company Law Tribunal (NCLT) for initiation of insolvency against DHFL.

Earlier in 2019, the company had defaulted on the payment of interest on its commercial papers and bonds worth Rs 900 crore. Though the company maintained that the cash crunch was a temporary problem, most rating agencies downgraded the rating of its commercial papers to ‘D’, indicating the default status.

This was followed by reports that the promoters of the company, Kapil Wadhawan, the then chairman and managing director, and Dheeraj Wadhawan, then a non-executive director, had transferred funds the company had collected into shell companies, which then re-routed the monies back into the accounts of the Wadhawans. 📣 Express Explained is now on Telegram

What are the bids for DHFL so far?

Up until November 9, which was the last date for submission and revision of offers for DHFL, Piramal Enterprises, the US-based Oaktree, Adani, and Hong Kong-based SC Lowy had submitted bids.

In the first round of bidding, Piramal Enterprises offered Rs 15,000 crore for the retail arm of DHFL, while Oaktree had offered to pay Rs 27,800 crore for the entire company. SC Lowy had meanwhile offered Rs 2,300 crore for non-slum redevelopment authority loan book of the company. After the lenders to the company expressed unhappiness over the low bids, all the companies revised their bids significantly.

The Adani Group, which was always a bidder in contention, had made an offer of Rs 2,700 crore only for the wholesale and slum redevelopment authority loan book of DHFL. The company later revised its bid and said it would offer a little over Rs 31,000 crore for the entire portfolio of the company.

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How does Adani Group bid change things for DHFL’s lenders?

With the total liabilities of the DHFL group estimated at over Rs 85,000 crore, lenders to the NBFC are likely to seek bids which maximise the funds they can recover. Since DHFL does not technically have many assets to its name, the lenders would be seeking to recover instead of looking for maximisation of value of the assets, legal experts said.

The Adani Group’s unsolicited offer for the entire book of the company will force lenders to call for new bids for DHFL. However, this is also likely to face a legal challenge from existing bidders like Piramal Enterprises and Oaktree.

Piramal Enterprises has already written to the lenders, objecting to the resolution plan submitted by the Adani Group. In its letter, the company said that offering a resolution plan after the submission date, which was November 9, was neither in accordance with the provision of the revised request for resolution plan dated 16 September 2016 (RFRP), nor the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, (CIRP Regulations).

Legal experts, however, believe that the DHFL lenders would be at liberty to call for a fresh round of bidding, which would give time to all the bidders, including the Adani Group, Piramal Enterprises, Oaktree and SC Lowy, to revise their plans and offer more money than they already have.

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