DHFL lenders to meet in early July to hammer out a rescue package

Extension of loan tenure, fresh working capital, and induction of new management on agenda

Lenders to beleaguered Dewan Housing Finance Corporation (DHFL) will meet in the first week of July to hammer out a rescue package, which will include the reworking of loan payments, fresh working capital support, roping in a financial investor, and putting a new management team in place.

A senior banker involved in the transaction said: “We will take a comprehensive look at the repayments done to date, the steps taken to sell assets, discuss the broad contours of the rescue package, and preparations for repayments over the next few months.”

State Bank of India, Axis Bank, HDFC Bank, ICICI Bank, and Union Bank are among the lenders to DHFL; the banking system’s exposure to DHFL is more than Rs 40,000 crore.

Ahead of the upcoming meeting, discussions are on to assess the addressable and sustainable levels of debt, how restructuring can be done by extending the tenure of loans, and through fresh liquidity support (working capital). “These are some of the talking points with lenders before finalising the term-sheet,” the banker said.  Private equity firms such as AION Capital — a joint-venture between ICICI Venture and Apollo Capital Management — and Lone Star are among those eyeing a stake in DHFL.

Oaktree Capital has evinced interest to buy the housing finance company’s wholesale portfolio.

Another aspect that’s being looked at is making some of DHFL’s assets sweat. Some of the projects to which DHFL had lent are facing a host of problems — delay in execution, overextended developers, and inability to execute a sale. “This logjam has to be broken and so you look at the viable projects to see what level of working capital finance they need and how that can be arranged,” said another banker involved in the deal.

It was pointed out that an arrangement could be worked out for banks to buy some part of DHFL’s portfolio to reduce loan exposure to the entity, but this will not be in the form of securitisation. 

Banks, which will purchase the loan, would also take on the responsibility for collection (servicing) and would not want DHFL to be in the picture.

Talks are on with strategic investors who would bring in fresh equity or buy a part of promoters’ stake, and the latter’s stake would be reduced to half of their current shareholding. Sources said promoter Kapil Wadhawan is likely to continue as chairman, while a managing director will be jointly appointed with the new partner. Currently, the Wadhawan family controls the housing finance firm, with a 39.21 per cent holding.

A senior executive with a Mumbai-based state-run bank said the timely resolution of the DHFL mess is important for the system, given the huge liabilities involved. The generation of additional liquidity will depend on the timely fructification of efforts made by DHFL, including sale of investments, induction of a strategic investor, and asset sell-downs.

Rating agency CARE in early June said there has been a deterioration in the liquidity profile of DHFL, with cash and liquid investments (including under the statutory liquidity ratio) falling to Rs 2,775 crore as on April 30, 2019, from Rs 4,668 crore at end of 2018-19.

DHFL envisages cumulative cash inflows of around Rs 6,600 crore between June 2019 and August 2019, and outflows of nearly Rs 10,780 crore during the same period — a mismatch of around Rs 4,180 crore.

According to the rating agency’s statement of June 5, rated bank loans facility to DHFL was at about Rs 42,700 crore, while total liabilities stood a little over Rs 1 trillion, covering debentures, fixed deposits, and perpetual debt.

DHFL on June 11, 2019, said that since September 2018, the company has managed to make payment of liabilities of over Rs 36,000 crore without availing of any fresh funding from lenders.