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DHFL’s lenders set to declare 65% debt as unsustainable

August 23, 2019 / 10:34 AM IST
 
 
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Highlights:
- DHFL shares fell nearly 13 percent on Thursday over speculation that lenders may take a majority stake in it
- Of the total unsustainable debt of DHFL, Rs 760 crore will be converted into equity at Rs 54 per share
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Lenders to Dewan Housing Finance Corporation (DHFL) are set to declare 65 percent of loans outstanding to the stressed mortgage lender as unsustainable, as part of a debt settlement plan, two people aware of the development said.

Of the total Rs 24,700 crore of unsustainable debt, or the portion of loans that DHFL can’t service through its cash flows, Rs 760 crore will be converted into equity at Rs 54 per share, while Rs 8,740 crore will be recast into unsecured debt that won’t generate any interest payments, one of the two people cited above said on condition of anonymity.

The remaining Rs 15,200 crore of unsustainable debt will be converted into 10-year non-convertible debentures with a coupon rate of six percent and will be allocated to its lenders.

The Rs 13,300 crore so-called sustainable component of bank loans will receive an annual interest of 8.5 percent and has to be repaid over eight years. The mortgage lender has a total bank debt of Rs 38,000 crore as on December 31, according to the latest available investor presentation.

DHFL was one of the worst-hit by the crisis faced by non-bank lenders after Infrastructure Leasing & Financial Services (IL&FS) defaulted on payments last year. The defaults increased the cost of funds and made it tougher for the shadow lender to borrow from banks and the bond market. Without access to fresh funds, DHFL’s lending business ground to a halt with no fresh disbursements.

The resolution plan for the mortgage lender is being prepared based on the June 7 circular of the Reserve Bank of India (RBI).

“We will have to take a hit on the unsustainable portion of the debt if this plan is implemented,” said the first banker, adding that the resolution plan will be finalised by the month-end. He explained that if shares are converted at Rs 54 and the market price is lower, lenders will take a hit on a mark-to-market basis. Shares of DHFL plunged nearly 13 percent to Rs 39.70 on BSE on speculation that lenders may take a majority stake in the mortgage lender by converting debt into equity.

Earlier this month, DHFL said that its draft resolution plan submitted to lenders spares creditors from having to take haircuts on principal payments.

The second banker said lenders to DHFL plan to infuse fresh funds of Rs 500 crore every month for six months into DHFL to help restart its retail lending business. “We are also looking to take a majority stake in the company following the debt-to-equity conversion. As part of the resolution plan, we have shortlisted candidates for the post of Chief Executive and Chief Financial Officer,” the banker said on condition of anonymity.

Rajkiran Rai G, Managing Director and Chief Executive of Union Bank of India, the leader of the lenders’ consortium, said on August 20 that the resolution plan has to go through scrutiny and everybody has to approve and see if there needs to be any changes. “The only thing I can say is that the resolution plan which is under discussion can be the best plan under the given circumstances,” said Rai.

According to RBI’s June 7 circular, 75 percent of lenders by value of the total outstanding credit facilities to a stressed company and 60 percent by number must agree for an inter-creditor agreement to be binding on all lenders.

The State Bank of India has an exposure of about Rs 10,000 crore to DHFL, the bank’s chairman Rajnish Kumar told shareholders at its annual general meeting in June.

Other lenders to DHFL include Bank of India, Central Bank of India, Andhra Bank, Canara Bank, Punjab National Bank and Corporation Bank.

As of December, DHFL had an outstanding debt of Rs 1 lakh core, of which 38 percent was in the form of bank loans, 47 percent from debt markets and 10 percent through deposits.

Emails sent to DHFL and to Union Bank of India remained unanswered till the time of going to press.

Mint
first published: Aug 23, 2019 10:34 am

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