Banks may take majority stake in DHFL, convert part of debt into equity

The consortium of banks led by Union Bank of India, which is working on the feasibility of the resolution plan submitted by cash-strapped housing financier Dewan Housing Finance Corporation (DHFL), is toying with the idea of taking a majority stake in the firm. 

It is understood that in order to execute the resolution process, banks may convert a part of their loans into equity. 

Sources say banks are at the final stage of deliberating on DHFL’s resolution plan it submitted on August 6. 

“To facilitate a faster implementation of the resolution plan, it is important that banks take charge of DHFL by taking a majority stake in it,” said a source aware of the development. 

While the extent of stake acquisition is being discussed, it is gathered that banks’ stake may go up to 51 per cent in the company. 

DHFL owes banks Rs 40,600 crore. It also has a liability of Rs 45,380 crore to pay the holders of debentures and bonds.

Another highly-placed source said while banks had agreed to extend the loan tenure and provide fresh credit lines to DHFL, these measures needed to be implemented soon for the company to restart business. 

With PE investment in DHFL taking longer than anticipated, banks are considering filling the void and helping it restart its business. “Banks will buy stake in DHFL on an as-is-where-is basis,” said a person close to the development. It is also understood that once DHFL finalises its PE investor, banks will exit the company by selling their shares to it.

Timeline of events

Sep 2018: DHFL shares crash on concerns of default after IL&FS crisis

Oct: DHFL stops disbursement because of liquidity shortage

Jan 2019: DHFL starts lending again but stops soon

Feb: Promoters of DHFL start talks with lenders 

Jun: RBI issues circular on restructuring of stressed debt 

Jul: Lenders sign inter-creditor agreement for DHFL resolution 

Aug: DHFL presents resolution plan to lenders

“Banks will not have any restriction on the term of holding DHFL’s shares upon converting debt,” said a person with knowledge of the development. 

DHFL is believed to be in advanced talked with PE players such as AION Capital and Cerberus Capital. “Investors don’t seem to be keen on putting in money in the wholesale assets of the company and unless they are hived off or sold to another entity, they may not pick up a stake in DHFL,” said a person aware of the development.  It is understood that DHFL is in talks with global distress asset buyers such as Oaktree Capital for its wholesale loan book, which totalled roughly Rs 35,000 crore as of March this year.  DHFL’s assets stood at Rs 98,000 crore in FY19. 

The move is expected to infuse further capital into the company and also cleanse the book significantly. 

After the sell-down of the wholesale book, which also carries projects approved by the Slum Rehabilitation Authority (SRA) loan portfolio, DHFL is likely to function as a pure-play retail mortgage lender.

It is understood that banks may finalise on the resolution plan by the end of August, though the long-stop date for the resolution plan is September 25.  DHFL will have to execute the plan in 180 days. If it fails, banks will have to mark their exposure to DHFL as non-performing assets (NPAs). 

Under the current resolution plan, DHFL has sought fresh loans of Rs 1,200-1,500 crore a month, which will enable it to restart its lending business. The company has also sought for a moratorium of 6-12 months on these fresh loans, apart from seeking an extension of tenure on current loans.