A year after invoking the bankruptcy proceedings against the beleaguered Dewan Housing Finance Corporation (DHFL) and as many as four rounds of bidding, the top two highest bidders -- the US-based Oaktree and Ajay Piramal-led Piramal Group -- are now engaged in a war of words publicly.
The committee of creditors (CoC), which has kicked off the evaluation process, has to mark the two bidders on six parameters that they had set in the beginning. The evaluation matrix approved by the CoC includes upfront cash, net present value of cash recovery, equity allotment, fresh infusion of capital, track record of bidders and quality of management. The last two are the qualitative parameters. Clearly, the successful bidder will be the one scoring better on these parameters. Let's take a look:
This parameter looks at the upfront cash to financial creditors within 90 days of approval of resolution from the NCLT. There is a 30 per cent weightage for upfront cash as financial creditors will get to redeploy this money for other productive purposes. In the fourth round of bidding, Piramals have claimed that they have offered a higher upfront cash of Rs 12,700 crore. Oaktree has offered around Rs 11,650 crore.
NPV of total recovery
This parameter is the most crucial as financial creditors want to know the present value of total amount that the bidders are promising. The bid includes cash plus future cash flows to financial creditors over a period of five to 10 years. There is a 40 per cent weightage to this parameter. If one looks at the total bid amount of top two players, the US-based Oaktree has emerged as the highest bidder with total amount at Rs 36,650 crore whereas Piramals have offered Rs 35,550 crore. The Oaktree has offered a seven-year repayment schedule whereas Piramals have specified a 10-year period. In addition, these kinds of repayments also have a moratorium for first few years. The CoC will have to take this into account to arrive at the successful bidder.
There is a 5 per cent weightage for equity allotment to financial creditors on fully diluted basis. There is no clarity whether bidders have offered equity shares in the acquired entity. This kind of situation arises when the financial credit converts their part of the debt (after haircut) into equity capital. In the past, there have been many IBC cases in which the existing equity got reduced (not cancelled or written off) and the creditors got some equity stake for an upside in future. In fact, there is a likelihood of DHFL equity getting completely written off by the new acquirer. So, the question of equity allotment doesn't arise.
Fresh capital infusion
There is a 10 per cent weightage to fresh capital infusion into the business after the bidder takes over. Piramals have promised a merger of DHFL and its financial services subsidiary Piramal Capital & Housing Finance. This will automatically result in capital infusion from the existing business. But this parameter makes sense only if the financial creditors have equity stake in the company to get the upside.
A 10 per cent weightage has been given to the track record. This is more of a qualitative parameter with high degree of subjectiveness. Piramal Group is a large Indian conglomerate with interest in pharma, financial services, real estate and glass packaging. The company also has global presence. Oaktree is a large global distressed fund with operations across the world. In fact, Oaktree was among the few distressed funds which was gung-ho on the new bankruptcy code in India to invest in the distressed market.
Key managerial people
Another qualitative parameter is the key managerial people in the management for which CoC has listed 5 per cent weightage. Ajay Piramal is a big name in the industry. Similarly, Oaktree has a global pool of managerial professionals to manage distressed assets. In fact, they have a proven track record of turning around loss-making businesses.