Cash-starved DHFL likely to get fresh line of credit from lenders

The consortium of lenders led by Union Bank of India discussed various modalities to ensure that their exposure to DHFL doesn't run into further stress

Efforts are underway to resume and revive the lending operations of troubled housing financier Dewan Housing Finance Corporation (DHFL). In the first round of the lenders’ meeting on Monday as part of restructuring their exposure to DHFL, bankers were willing to consider the proposal of extending a fresh line of credit, sources in the know said.  

The consortium of lenders led by Union Bank of India discussed various modalities to ensure that their exposure to DHFL did not run into further stress. “Since the issue is that of liquidity and not business failure, banks are interested in considering fresh credit lines to DHFL if it could help revive the company’s lending activities,” said a person aware of the development. The consortium is likely to extend loans of Rs 12,000-18,000 crore over a year, split as monthly credit facilities of Rs 1,000-1,500 crore. 

DHFL hasn’t been able to disburse new loans for over six months since the liquidity crisis broke in September 2018. Confirming that additional loans could be provided as part of restructuring stressed assets and are well within the purview of the Reserve Bank’s June 7, 2019, circular, a person with direct knowledge affirmed the new line of credit might be extended as a short-term facility with a maturity of 6-12 months. “Banks will identify a pool of assets, against which they may opt to securitise their new exposure,” the source stated.  

According to company sources, DHFL owes Rs 38,000 crore to banks, while exposure to non-convertible debentures (NCDs) is about Rs 37,000 crore, of which retail NCDs total to Rs 10,000 crore payable by 2024. After repaying bank loans of Rs 40,000 crore in the last three months, DHFL is said to have an asset base of Rs 80,000 crore, of which over 50 per cent is retail housing loans. The company is yet to declare its March 2019 quarter results, so its exact financial position is not available in the public domain.

Sources close to the development said banks had less than a week’s time (till July 6) to sign the inter-creditor agreement, and on July 10, the resolution plan would be formally placed at the consortium meeting. The resolution plan needs to be implemented by September 25. 

It is also learnt that banks are reviewing the quality of DHFL’s loan book (retail and developer loans) and if found suitable, the consortium may agree to extend the tenure of the existing loans to match the maturity schedule of DHFL’s assets. “If this option fails, some banks may opt to buy out DHFL’s loans in lieu of their present exposure,” said a person aware of the development. As the last option, banks are also examining the possibility of converting part of their debt into equities or share warrants. 

“The conversion will happen at market value, but it is unlikely that banks may collectively hold more than 10 per cent in DHFL,” said a source. 

As for private equity (PE) investors evincing interest in the business, it is understood that a foreign investor would pick up a stake in the company. AION Capital, a joint venture between ICICI Venture and Apollo Capital Management, Lone Star and Oak Tree Capital are said to be in fray to pick up a stake in DHFL.