The 35-year-old housing finance company, Dewan Housing Finance Corporation Limited (DHFL), that finds itself in the middle of a liquidity crisis, is likely to submit a resolution plan promising to repay all holders of maturities and fixed deposit holders on due date without them having to take any haircut, as per media reports.
The lenders are expected to meet in the coming weeks to discuss the restructuring proposal, in which the mortgage lender plans to propose the restructuring terms to lenders. As per a report in the Mint, this can include fresh issuance of non-convertible debentures (NCDs), including zero-coupon bonds and can also result in some of the outstanding debts likely to be converted into equity by lenders.
People aware of the development said that cash strapped DHFL may seek a halt on its debt repayments with lenders, prolonging the tenure of existing loan facilities by 10-20 years.
The company was asked to provide a detailed resolution plan to its lenders by July 25, which is likely to include rolling over loans, converting debt into equity, seeking additional working capital and drawing in a new investor, etc. "We wish to inform you that the Company has been constantly engaged with the lenders to formulate and finalise the resolution plan and expects to submit the resolution plan for consideration by the lenders shortly, which is within the timeframe available with the Company," they had said recently.
In a reply to clarification notice dated May 22, the cash-strapped housing finance company (HFC) had explained, "Please note that the company has stopped acceptance and renewal of Fixed Deposits due to the recent revision in the credit rating of fixed deposits program of the Company, which is below the minimum rating prescribed under NHB guidelines for acceptance or renewals of the Fixed Deposits."
The non-banking financial company (NBFC), was reassessed by National Housing Bank on company's FY18 capital adequacy ratio, that measures a bank's financial strength by using its capital and assets, at 10.24%, that is lower than its own assessment of 15.29% and the regulatory minimum of 12%. A bank with higher capital adequacy ratio is considered safe and is likely to meet its financial obligations.
The lender had decided to stop acceptance or renewal of fixed deposits as a consequence of revision in its credit ratings. As of December 2018, the cash loan mortgage lender's fixed deposit liability was Rs 10,000 crore, according to its corporate filings.
DHFL has been undergoing substantial financial stress and has begun its journey downhill in September last year. The mortgage lender has been the worst hit by the liquidity crisis in the NBFC sector, that crippled numerous Indian non-banking finance companies (NBFCs) following last year's defaults at the infrastructure lender, Infrastructure Leasing and Financial Services Ltd (IL&FS).
DHFL, that was once the second-largest private-sector HFC after HDFC, reported default on commercial papers dated June 4 and later on June 26, 2019.
The embattled DHFL, one of India's largest housing finance companies, declared losses of Rs 2,223 crore for the fourth quarter of FY19 last Saturday. Meanwhile, Deloitte Haskin & Sells and Mumbai-based Chaturvedi & Shah, DHFL's two auditors of the debt battling firm raised several red flags around its numbers, raising fresh concerns about the future of the troubled lender.
"The company is already in the process of selling down its loan assets including wholesale project loans to make good all its obligations and maintain its 100% commitment to all its creditors as it has done since the liquidity crisis started in September 2018," DHFL had said then. Moreover, the crisis-hit company has been selling off its non-core assets to meet financial obligations.
Promoters of the company, the Wadhawan family, who currently holds close to 40 percent stake in the company, have been undergoing the process of pruning their assets to shore up liquidity into the major housing lender. Private equity firms Lone Star, AION Capital, and KKR are in talks with promoters for a strategic stake, media reports said.
The Mumbai-based housing finance company has been also stung by allegations of fraud and improper lending practices that have spooked investors, which the lender has denied with time. In all, these several red flags raised around DHFL's issues could jeopardise its attempts to restructure its debt.
DHFL's stock price nosedived to Rs 55 on July 25 from a 52-week high of Rs 691.50 on September 3, 2018. The DHFL stock has fallen over 91% in the last one year period, nearly 77% year-to-date on both the bourses, respectively.
Edited by Rupa Burman Roy