A large pool of creditors of the ailing DHFL—lenders, mutual funds, fixed depositors and provident funds, private equity, insurance and debt funds, who had collectively ploughed in a massive ₹87,000 crore into the housing finance company, are keeping their fingers crossed as the high-pitched bidding enters the last lap.

After having long parleys with the two leading bidders—Oaktree Cap and Piramal Enterprise—spread over December 17-18, the committee of creditors (CoC) has now sought clarity from them for one last round before taking the final call, on December 23, 2020. The bidders are expected to submit their clarification tomorrow (December 21).

Among the queries are the viability of their proposals to hold back some funds and their proposed treatment of DHFL’s insurance business. Oaktree has proposed that out of the upfront payment offer, ₹1,500 crore will be held back for an indefinite to meet contingencies arising on account of investment in DHFL Pramerica Life Insurance Ltd. Piramal’s holdback is pegged at ₹300 crore.

What is complicating the process is that the offers made by the bidders have many conditions attached. While the upfront payment of Piramal Group is higher, the net present value (NPV) of Oaktree Capital is better, according to bankers.

People close to the bidding process said Oaktree's bid (net of insurance) of ₹32,700 crore (with cash of ₹11,700 crore and non-convertible debentures of ₹21,000 crore) is marginally higher than the ₹32,250 crore bid by Piramal Group (with cash component of ₹12,700 crore and NCDs of ₹19,550 crore). Adani is a distant third with ₹29,860 crore (cash of ₹10,750 crore and NCDs of ₹19,110 crore).

But many in banking circles believe that Piramal has an edge because it has offered the highest cash upfront at about ₹12,700 crore, way above Oaktree’s ₹11,700 crore. While Oaktree offers to make the remaining amount over seven years and a three-year moratorium, Piramal has said it would pay the remaining amount over a longer period of 10 years without any moratorium. If it wins the bids, Piramal has offered to infuse ₹10,000 crore of equity into DHFL through a reverse merger of Piramal Capital & Housing Finance Ltd, its financial services company, into DHFL.

Being the first case of a finance company undergoing the Corporate Insolvency Resolution Process as per the Insolvency and Bankruptcy Code (IBC), everyone is keen to see a positive outcome, with creditors getting some of their sunken money. DHFL is facing claims of ₹87,031 crore from lenders including State Bank of India (SBI), along with SBI Singapore, (₹10,083 crore exposure), Bank of India (₹4,125 crore) and Canara Bank (₹2,681 crore), among others. Fixed Deposit (FD) holders account for nearly ₹5,400 crore.

The lenders are also in the process of scrutinizing the loans to see if the management has committed any fraud and diverted money.

The CoC has discussed threadbare the prospect of the insurance arm, DHFL Pramerica Life Insurance Co Ltd, since there is a foreign holding cap of 49%. DHFL had forayed into the insurance sector by buying out DLF’s stake in what was then DLF Pramerica Life Insurance, in 2013. At present, Prudential International Insurance Holdings Ltd owns 49% in DHFL’s life insurance company. Oaktree, being a foreign investor, has said that until the insurance subsidiary gets sold, it will hold the life insurance investment under DHFL. Piramal, on its part, said that it would acquire the insurance arm for at least ₹300 crore if DHFL’s stake in the insurer fails to get sold within six months.

In a recent communication, the Insurance Regulatory and Development Authority of India (Irdai) has made it clear to the resolution professional of DHFL that foreign entities cannot have any stake or control more than the prescribed FDI cap of 49%.

Lenders may be also tempted to take a close look at the offer made by Piramal to pay a higher coupon rate of 6.75% on the non-convertible debentures worth ₹19,550 crore, which is proposed to be issued to the lenders for repayment post the acquisition of DHFL. Oaktree and Adani have offered a marginally lower interest rate of 6.65% on their proposed NCDs.

People familiar with the bidding process said Oaktree has put a key condition that it will have the right to reprice the deal or pull out from the deal altogether if it doesn’t get closed before March 31, 2021. The CoC has sought legal opinion from two law firms—J. Sagar Associates and Cyril Amarchand Mangaldas—on the repricing clause.

DHFL has over 4,000 employees on its rolls. Piramal has promised to retain all of them. It is not known if Oaktree or Adani has made any similar promise.

The CoC had decided to go for a fresh round of bidding after an unsolicited last-minute bid from Adani Group sparked a row from the other bidders in the previous round that ended last month. After making a late entry, Adani Group managed to squeeze into the bidding process as CoC preferred fresh bids from all bidders by December 14 on the advice of former Attorney General of India Mukul Rohatgi. There was consensus among lenders that the original offers were pretty low and a decision to go for fresh bids was unanimous. Bidders were also given the freedom to bid either for a portion of the loan book or the entire portfolio. When the three rival bidders threatened to walk out of the process, Adani Group had offered to put more money on the table, in a communication to DHFL’s administrator on November 22.

However in the final round, Adani’s fresh offer of ₹33,110 crore, with ₹10,750 crore upfront cash payment and deferred payments of ₹19,110 crore spread over seven years, fell far short of the other two.

Miffed with the CoC’s move for fresh bids, the fourth suitor, Hong Kong-based SC Lowy pulled out of the bidding.

Meanwhile, the CoC seems to have cast a blind eye towards a fresh offer by the erstwhile promoter of DHFL, Kapil Wadhawan. He had written to the administrator with a fresh proposal to repay 100% of the principal debt to the creditors. He also proposed paying upfront fees of ₹9,000 crore and the remaining amount over eight years. “If the bids for DHFL continue to be as low as previously, I would request the committee of creditors to consider my settlement proposal instead, rather than permit DHFL to be sold for a song,” he had written in his letter.

Public deposits contribute 7% of the overall borrowing mix of DHFL, with debenture holders having 37% exposure followed by banks having 31%.

As governance and default concerns mounted, the RBI in November 2019 superseded the board of directors of financially-stressed DHFL and appointed an administrator, former MD and CEO of Indian Overseas Bank (IOB) R Subramaniakumar. He is being assisted by an RBI-appointed advisory committee. On November 29, 2019, RBI sent DHFL to the bankruptcy tribunal, making it the first non-banking finance company/housing finance company to be resolved under the Insolvency and Bankruptcy Code (IBC).

As per its annual report, DHFL had total assets amounting to ₹79,800 crore as of March 2020. Of these, ₹50,227 crore of assets forming 63% of the total portfolio were reported as non-performing assets. Its retail book stood at ₹33,500 crore.

Founded in 1984 by late Rajesh Kumar Wadhawan, DHFL rose to fame with its vision of providing financial access to lower and middle income customer segments among the semi-urban and rural population in the country. With a large network across the country, it catered to millions of customers in the lower and middle income category, before the model collapsed after the Enforcement Directorate arrested its promoters, Kapil Wadhawan and Dheeraj Wadhawan, in a case of alleged fraud caused to YES Bank.

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