DNA EXCLUSIVE: DHFL proposes split of biz, part conversion of debt

Debt-laden Dewan Housing Finance Corporation Ltd (DHFL) has proposed to its lenders and bondholders a trifurcation of its business into three verticals and part conversion of its Rs 1 lakh crore debt into repayment in five to 10 years, a source familiar with the development said.

While 30% of the total debt will be serviced within 10 years, the remaining portion will be converted into non-convertible debentures (NCDs) or bonds to be repaid over 20 to 25 years, the source said.

As part of the resolution plan, DHFL has proposed to split the business into three verticals comprising retail housing finance, developer finance and loans against property. India's fourth-largest housing finance company has also told the retail bondholders that they will be repaid their dues as and when their bond matures.

Banks are willing to accept the new resolution plan provided Kapil Wadhawn, the chairman and managing director of DHFL, relinquishes his post and there is a change in management.

Insurance Regulatory and Development Authority (Irda) has already given permission to the insurance companies to sign the inter-creditor agreements (ICA). The mutual funds which have invested into the bonds of the company are yet to be part of the lenders' consortium. "They are also working out some modalities so that all the financiers and bondholders work together to get back the money," said a banker who did not want to be identified.

The consortium of lenders will meet soon to take a final call on the resolution plan. "The consortium has to meet to discuss the contours of the deal before it is approved. Lenders also want to see the forensic audit report before finalising the resolution plan," the banker said.

In a notification to the exchanges on Tuesday, DHFL said that its creditors would not have to take any haircuts on principal payments under its resolution plan. "There is no haircut but there is a time value of money that will be lost for all the creditors," said a banker.

DHFL will also put a moratorium on repayments and seek funding from banks to start retail lending, the company said after a meeting of the special committee for resolution plan.

The shadow bank also said in a separate statement that its auditor Deloitte, Haskins & Sells LLP had resigned, citing irregularities in DHFL's financial statements for the year ending March 31.

The company has roughly Rs 1 lakh crore of debt and is in the process of seeking lender approval on a restructuring designed to help it ride out a liquidity crunch and restart its lending business.

Last month, DHFL filed its long-delayed audited results for the quarter ended March 31 and revealed that its auditors had raised several red flags around its numbers.

The company has given time to the bondholders till August 26 to decide if they want to be part of the lenders' consortium. These are mostly the mutual funds which are trying to get approvals from the market regulator Securities and Exchange Board of India to join the ICA. Both the pension funds and the insurance companies have got permission from their respective regulators to be part of the ICA.

Last week, DSP Mutual Fund, one of the creditors of DHFL, said it had initiated legal action against the housing finance company as 50% of its dues remained unpaid.

According to the central bank regulations, a resolution plan can only go through if three-quarters of lenders by value of the outstanding credit and 60% by number have agreed to it, making it critical for the bondholders to be on-board with the plan.

There are approximately 86,000 NCD holders and about 300 institutional bondholders, including mutual funds, provident funds, insurance companies and pension funds.