DHFL proposes equity route for debt resolution

Financially strained Dewan Housing Finance Corporation (DHFL) has proposed a debt resolution plan of converting part of the debt of all permissible class of creditors and restructuring liabilities of the company into term loans and non-convertible debentures.

The company had, on Saturday, held a meeting to present the draft resolution plan to all institutional creditors, including banks, financial institutions, mutual funds, insurance companies and other institutional bond holders, and to apprise them of the various steps required to be undertaken to implement the resolution plan, DHFL said in a filing with the stock exchanges.
A price of Rs54 per share was assumed for conversion of debt into equity by lenders to acquire 51 per cent in the company, it said.
This proposed resolution plan, including all projections, cash flows and computation of liabilities, was based on reports received from various consultants appointed by lenders and the company, it said.
The cash flow projections factored for the proposed resolution plan do not take into account any tax impact that might occur, in the hands of borrowers, it said.
The Wadhawan family, which owns a little over 39 per cent in the company, has been looking at ways of coming out of the stress, which first came to light late last year following the IL&FS bankruptcy. These include selling stakes in group entities, including in the flagship, to the extent of giving up half of their stake.
In addition, Wadhawan assured the investors that 'no haircut on the principal' will happen.
"Part of the debt will be converted into equity and will be offered to all permissible classes of creditors. In addition to the conversion of debt to equity, liabilities of the company will be restructured into term loans and non-convertible debentures linked to cash flows from segregated portfolios of the company," DHFL chairman and managing director Kapil said.
Addressing the 35th annual general meeting (AGM) of the company, Wadhawan said: "Currently, the company has an overdue liability of around Rs8,000 crore, which the company will repay once the debt resolution process completes.
"Through the toughest phase your company has been witnessing, it is noteworthy that we have repaid almost 40 percent of our balance sheet without any fresh borrowings. This has been possible only through asset monetisation initiatives. The intent of your company towards fulfilling every financial commitment and obligation remains unimpeachable."
According to Wadhawan, the company continues to take "all necessary steps" to "preserve every stakeholder's interest" and to regain business and grow momentum.
"We have repaid most of DHFL's liabilities until July 5, 2019, despite the liquidity squeeze. We are in discussions with all the lenders and are in advanced stages of finalising the debt resolution plan," Wadhawan said.
"To ensure adequate liquidity to meet the repayments, DHFL also sold its strategic retail assets including Aadhar, Avanse and DHFL Pramerica Asset Managers. As a result, DHFL could repay close to Rs 40,000 crore of its financial obligations," he added.
Wadhawan further said that the company's immediate focus is to resolve the repayment schedule of Rs8,000 crore of liabilities and restart disbursements.
"This underlines our efforts towards ensuring commitment and complete transparency. DHFL has been reaching out to creditors to participate as investors to provide the much-needed thrust to restart the business," Wadhawan said.
In addition, Wadhawan assured the investors that 'no haircut on the principal' will happen.
"Part of the debt will be converted into equity and will be offered to all permissible classes of creditors. In addition to the conversion of debt to equity, liabilities of the company will be restructured into term loans and non-convertible debentures linked to cash flows from segregated portfolios of the company," Wadhawan said.
"Further details such as ROI and deferred payment schedule will be released by the company soon and all repayments under the plan will be significantly higher than the liquidation value," he added.
DHFL has been one of the companies most severely hit by the ongoing liquidity crisis which came to light after the infrastructure lending major IL&FS first defaulted on its commercial papers last year.
The housing lender's gross non-performing assets (NPAs or bad loans) as on 31 March 2019, rose to 2.74 per cent, as against 0.96 per cent during the like period of the previous fiscal.
Besides, DHFL had said on 13 July that it had defaulted on interest payments to the tune of Rs48 crore on non-convertible debentures (NCDs) which were due on 6 and 8 July.
In its quarterly earnings for the January-March quarter announced last month, the company reported a net loss of Rs2,223 crore.