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Committee of Creditors likely to meet on December 23 again to evaluate DHFL bidders, wants more clarity from contenders

CoC will likely look at eligibility of bidders beyond financial component. Piramal Enterprises offers a higher cash upfront—preferred by lenders— than rival Oaktree for troubled mortgage lender DHFL.

December 21, 2020 / 10:07 PM IST
 
 
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The race for beleaguered mortgage lender Dewan Housing Finance Corporation Ltd (DHFL) has narrowed to two top contenders—Piramal Group and Oaktree Management. The Committee of Creditors (CoC), which met on Friday and Saturday to evaluate the bids, have sought more clarity from these bidders on their bids, including details on upfront payments to creditors and business besides the part on treatment of DHFL’s insurance business.

“The top bidders have been asked to bring more clarity on their bids with respect to various aspects. The CoC will meet likely again on Wednesday (December 23) to discuss,” said a person familiar with the development. Of the three bids considered in the final rounds, Oaktree has the highest bid of around Rs 36,646 crore followed by Piramal’s Rs 35,550 crore. The third one was Adani Group which reportedly offered Rs 33,000 crore.

Last week, Moneycontrol reported that Piramal holds an advantage over other suitors on account of higher upfront payment.

Piramal Enterprises offered Rs 12,700 crore as cash upfront trumping the Rs 11,646 crore offer from American asset manager Oaktree.

To be sure, the CoC is not just looking at the overall bid amount but multiple components including upfront payment, non-financial aspects such as bank guarantees, the background of the bidder and experience in the business, insurance component besides a convincing balance payment schedule. “There is not one single component that will decide the winner,” said the banker quoted above.

Even the overall bids may not be final as the bidders have an ongoing dialogue with CoC wherein the bid sizes are revised and new offers are made. Right now, both Piramal and Oaktree are caught in an aggressive chase with both parties unwilling to let go of the mortgage lender.

DHFL’s brand and customer base are a big attraction to bidders. With respect to the insurance business of DHFL, there is a possibility that the winning bidder may look at a separate holding structure to comply with the local laws.

“It is totally up to the CoC to choose the winner. It may not be the overall bid alone but also the comfort of lenders on the party,” said the person quoted above.

Banks stare at huge haircut

No matter who wins the bid, bankers of DHFL will have to forget a good chunk of their money in the form of haircut. Roughly, around Rs 90,000 crore of the bank money is at stake. Almost all big lenders have exposure to the housing lender.

State Bank of India has the biggest share—around Rs 10,000 crore. Bank of India has around Rs 4,125 crore exposure to DHFL, Canara Bank Rs 2,681 crore, NHB Rs 2,434 crore, Union Bank of India Rs 2,378 crore, Syndicate Bank Rs 2,229 crore and Bank of Baroda Rs 2,075 crore. Indian Bank has an exposure of Rs 1,552 crore, Central Bank Rs 1,389 crore, IDBI Bank Rs 999 crore, and HDFC Bank Rs 361 crore. These figures may have changed by now to account for accrued interest.

But for DHFL’s lenders, any recovery is good since banks at one point weren’t expecting anything from the troubled lender.

How did DHFL fail?  

At one point, DHFL was a big name in the pure-play mortgage business. The story is, in some way, similar to the Kingfisher-Vijay Mallya case. Banks lent to Mallya just on the basis of his name, not the airline’s cash flows. Similarly, DHFL’s promoter Kapil Wadhawan was a name banks wouldn’t dare to ignore in a tight competitive loan market. Bank officers used to queue up at Wadhawan’s office (Read an earlier piece at Moneycontrol ).

DHFL’s business was booming and some analysts even secretly called it the next HDFC. The glory was short-lived. Towards late 2018, DHFL began showing signs of liquidity crunch. Post the IL&FS mayhem, rumours of defaults by the mortgage lender began to float around. In July-August, 2019, DHFL defaulted on a series of payments. And all hell broke loose.

The crisis, a result of years of mismanagement and dangerous over-leveraging by Wadhawans, weighed DHFL down. Liquidity became scarce. When the mess deepened, the RBI superseded the board on November 20, 2019, and later pushed the firm to the NCLT for insolvency resolution 10 days later. The company was admitted for IBC proceeding on December 3, 2019.  The writing on the wall was clear.

Kapil Wadhawan allegedly created a string of shell companies to facilitate illicit financial transactions and purchased prime properties belonging to Iqbal Mirchi’s family in Mumbai’s Worli area. Wadhawans also routed money from DHFL to the shell companies in which Kapil had a share. DHFL, at one stage, was used like a piggy bank by Wadhawans who had unquestionable control over it.

Banks will be lucky if they recover a part of their exposure to DHFL. They can’t expect much and don’t have a choice but to accept what they get at the end of the auction.

Dinesh Unnikrishnan
Dinesh Unnikrishnan
first published: Dec 21, 2020 02:42 pm

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