Dewan Housing Finance Ltd (DHFL), which is reeling under a debt burden of around Rs 1 lakh crore, may get an emergency capital infusion from its lenders to keep the company afloat. This news comes less than two weeks after the beleaguered company announced that its board approved conversion of whole or part of its debt into equity shares. The proposal will be taken up for shareholders' approval at DHFL's 35th annual general meeting to be held on September 28.
DHFL, which owes around Rs 35,000 crore to banks alone, has defaulted on its obligations several times. Its lenders are now planning to infuse fresh funds to the tune of Rs 7,000 crore into the company to ensure that the loans that are currently classified as SMA-2 - where interest payment is delayed for 60-89 days - do not slip into NPA category, The Economic Times reported.
"All banks have realised that this [loan of Rs 7,000 crore] is necessary to keep loans sustainable. Otherwise, we will have to find a strategic investor to put money into the company," a banker involved in the restructuring plan told the daily. State Bank of India (SBI), Bank of Baroda (BoB) and Union Bank of India (UBI) are the top lenders to the company.
Separately, an inter-creditor agreement (ICA) for DHFL is in the works and 34 lenders have consented to it. But mutual funds - which collectively own nearly 10 per cent of the total exposure - are unlikely to sign it, citing a regulatory rider known as sidepocketing or segregation of stressed assets. UTI, Reliance Nippon, Axis, Tata, Kotak, DSP, and Pramerica are some of the mutual fund houses that invested in DHFL debt securities. Among them, only Tata Mutual Fund, which has already complied with relevant regulations, has agreed to be part of the ICA.
A source told the daily that even if mutual funds cannot sign the ICA, they can still be part of the resolution process and the lenders have decided to go ahead with the plan. "The risk is that may be some fund will go to court against the plan. But the funds also know that going to court will only delay the resolution and destroy value in the company," the banker added.
Given that bond holders, including mutual funds, insurance companies and pension funds, have a Rs 45,000-crore exposure, they are expected to ultimately support the restructuring plan that's being worked out. The plan is reportedly close to getting finalised and may be put up for consideration of the company in the next few days.
The proposed restructuring focusses on wholesale loans that account for around 45 per cent of DHFL's outstanding debt. These are loans that the company has given to builders and on some slum rehabilitation schemes and they are not generating cash flows to remain sustainable. "For the wholesale loans, the plan is to slice them into four parts, a term loan, some debt which is converted to equity, non convertible debentures (NCDs) of a slightly longer tenure and subordinated debt," said a source, adding that the proportion and modalities are yet to be worked out. The retail loans, on the other hand, are considered sustainable and can be converted into three or four term loans at different pricing.
However, DHFL's creditors are reportedly yet to zero in on a formula for the debt-to-equity conversion plan, which is a key part of the proposed restructuring. The lenders are debating whether to do the conversion at around the current market price, based on the price formula of the Securities and Exchange Board of India (Sebi), or to do so at a token price of Rs 1 per share.
In the meantime, Kapil Wadhawan, DHFL's Chairman and MD, informed the bourses on Monday that the company has honoured its payment obligations for the payments due in the ordinary course as per their original repayment schedule until July 5. "This does not include any payments on account of acceleration of any liabilities," the regulatory filing added.
DHFL's share price spiked over 5 per cent to Rs 49 apiece in early trade on Tuesday. Yesterday, too, the stock rallied over 10 per cent in intraday trade on the BSE after the company paid the entire pending debt to DSP Mutual Fund.