Sebi, Irda examining Oaktree’s offer

Mumbai: Global alternative asset investor Oaktree Capital’s bid for Dewan Housing Finance Corp. Ltd (DHFL), which is undergoing bankruptcy resolution, is being examined by India’s financial sector regulators, said people with knowledge of the matter. The Piramal Group and Oaktree are the two leading bidders for DHFL.

Oaktree said it hasn’t received any communication from the regulators.

The Insurance Regulatory and Development Authority of India (Irda) is examining whether there’s a breach of the 49% cap on foreign direct investment in domestic insurance firms through misuse of the alternative investment fund (AIF) structure. An Irda official said the regulator had received a complaint on the matter, without elaborating.

The Securities and Exchange Board of India (Sebi) has sought a response from DHFL’s administrator regarding reports from a consultancy firm and credit rating agencies that supposedly backed Oaktree’s plan and could influence the committee of creditors and investors, said the people cited above. “Oaktree in its resolution plan had mentioned they have received AAA ratings from credit rating agencies if they were to win the bid,” said a person familiar with the development.

Sebi rules don’t allow the securing of indicative or advance ratings from credit rating agencies.

Relevant Documents Sought

It asked the administrator to submit all relevant documents, including the names of the credit rating agencies at the earliest. The administrator was to have replied to Sebi’s January 5 letter on Wednesday.

“Your allegations are misinformed and we would like to understand which authority has raised them,” a spokesperson said. “Oaktree has not been contacted by any regulator in India with regard to our resolution for DHFL. Oaktree’s resolution continues to be a superior offer.”

The administrator of DHFL, Irda and Sebi didn’t respond to queries.

Oaktree Capital proposes to acquire the 51% stake of DHFL Investment Ltd (DIL) in Pramerica Life Insurance through an AIF. FDI rules restrict foreign ownership in insurers to 49%. DHFL’s foreign partner, Pramerica Financial Inc., currently owns the maximum permissible limit. “Irda is concerned whether Oaktree Capital is using a newly formed Indian fund just to comply with rules to indirectly buy a controlling stake in an insurance company,” said a person close to the development. “The insurance regulator is also looking at the ‘fit and proper’ criteria which determine whether an investor meets the standards required for ownership.”

Oaktree has offered upfront cash of over ₹11,600 crore and ₹21,000 crore in the form of nonconvertible debentures (NCDs) to be paid over seven years. The Piramal Group has offered ₹12,700 crore as upfront cash and ₹19,550 crore in NCDs to be paid over 10 years.

“Financial sector regulators are concerned about quality and adequacy of information being put in the resolution plan in order to get the voting in the bidders’ favour,” said a former regulatory official.

DHFL went under insolvency resolution in November 2019, after the RBI asked lenders to initiate proceedings. DHFL’s outstanding loan book stands at ₹67,000 crore.