Oaktree Capital, Piramal group trade charges over bids for bankrupt DHFL

US firm says its offer is better, warns of legal action

Upping the ante, Oaktree Capital and the Piramal group have drawn the attention of the lenders to bankrupt housing finance firm DHFL that the offer submitted by the other firm is legally flawed and could eventually be challenged in court. Voting on the proposals submitted by the bidders will conclude on January 14. 

While Piramal has scored nine points higher than Oaktree across the six qualitative and quantitative parameters set by the committee of creditors (CoC), the US firm said its offer was being undervalued by Rs 2,700 crore by the lenders, giving an upper hand to Piramal. This includes Rs 1,000 crore set aside by Oaktree from the future sale of DHFL’s life insurance venture for the lenders and Rs 1,700 crore of additional interest income, which was offered by the firm two days after the deadline to submit bids ended on December 22.

Spokespersons for Oaktree and Piramal declined to comment.

A source in the Piramal group, however, said the Oaktree offer was under a cloud as it would not get the regulator’s approval to hold stake in DHFL’s insurance venture. The acquisition, the source added, would breach the foreign direct investment ceiling as 51 per cent is already owned by a foreign partner, Pramerica. Besides, Enam backed out of the AIF (alternative investment fund) structure proposed by Oaktree after the bid was submitted, spooking the lenders.

Also, as the offer of additional Rs 1,700 crore came after the bid submission deadline, the CoC has not considered it while scoring the offers, but mentioned it as a footnote in the scorecard.   

On Wednesday, Oaktree sent a missive to the CoC, pointing out how its offer was better than Piramal’s, and legally implementable. Oaktree said the fair market value (FMV) of its proposal was higher than Piramal’s offer by Rs 4,503 crore. 

According to a fair market valuation report done by PwC and submitted to DHFL’s administrator, Oaktree said its non-convertible debentures (NCDs) would fetch a premium of 2 per cent as its instrument would have AAA-rating and 7-year tenure with a higher coupon of 6.65 per cent as compared to similar AAA-rated NCDs. By contrast, the FMV of Piramal’s offer should be discounted by 15 per cent due to AA-rating, a longer tenure of 10 years, and a lower coupon of 6.75 per cent versus comparable AA- rated NCDs.

Oaktree said it had also “committed” to infusing amounts in DHFL by way of equity and debt and made it clear in the commitment letter attached to its resolution plan.

Oaktree said it would turn around the operations of the DHFL entity on a standalone, going concern basis and DHFL would not be merged into another entity.

“There is, therefore, no contagion risk from external liabilities, minimising the risk that the financial creditors may ultimately find themselves in a second resolution process,” Oaktree said. With its offer, it added, the financial creditors would become senior secured lenders holding AAA-rated instruments. 

Piramal has planned to merge DHFL with its financial services business on day one of getting approval from the NCLT.

Oaktree said Piramal’s intention to merge DHFL into its existing housing finance business would result in contagion risk for the lenders and the cash flows generated by DHFL would be used to service unrelated, external indebtedness of Piramal’s wholesale business. “This is a bad deal for the financial creditors,” Oaktree said.

“The financial creditors emerging from one resolution process will then be exposed to another highly indebted company and ultimately the risk of a second resolution process will be a failure of the IBC and the CIRP process,” it said, and warned that it reserved the right to take legal action.

DHFL was sent to the NCLT in December last year after it defaulted on loans worth Rs 90,000 crore. A forensic audit conducted by the lenders revealed Rs 14,000 crore in the books of DHFL.