DHFL Lenders Will Not Have To Take A Haircut

Dewan Housing Finance Corp. Ltd (DHFL) said a panel set up by the company’s board has approved a debt resolution plan that seeks a moratorium on repayments but spares creditors from having to take haircuts on principal payments, sending its shares surging 32%.

As part of the resolution proposal, which has to be now approved by its lenders, DHFL will seek funds from the National Housing Bank and other lenders to restart retail lending and take steps to address its asset-liability mismatch, the home financier said on Tuesday after the special panel reviewed the draft resolution plan formulated by the company in consultation with adviser EY.

Lenders may still have to take a haircut as the DHFL statement is silent on interest payments, said an analyst, who declined to be named.

“It can also be that they are asking for a waiver on the coupons they are paying on their liabilities. For instance, if today’s liabilities are costing 9%, they may ask lenders to reduce it to 8%. So, effectively it is a loss of future income but a zero haircut on the principal. The zero haircut on the principal could be a caveat as it could entail a hit on the future interest income of lenders,” added the analyst.

On Tuesday, shares of DHFL rose the most in 27 years to ₹55.40 on BSE. The exchange’s benchmark Sensex gained 0.75% to 36,976.85 points.

Mumbai-based DHFL, which has about ₹1 trillion of debt, will now send the proposal to its lenders for approval.

Dewan Housing was the worst-hit by the crisis faced by non-bank lenders after Infrastructure Leasing and Financial Services Ltd defaulted on payments last year. The defaults increased the cost of funds and made it tougher for the shadow lenders to borrow from banks and the bond market.

Lenders to DHFL have signed an inter- creditor agreement and will now consider the financier’s proposal. They have also met institutional bondholders comprising mutual funds, provident funds and pension funds to explore options of working together under the resolution proposal.

Mint reported on 26 July that DHFL’s resolution plan is likely to promise repaying all term and fixed deposit holders on maturity without them having to take any haircut. The report said DHFL may seek a moratorium on its debt repayments with lenders, extending the tenure of existing loan facilities by up to 10-20 years, depending on the size of the facility and the maturity period.

State Bank of India has an exposure of about ₹10,000 crore to DHFL, the bank’s chairman Rajnish Kumar told shareholders at its annual general meeting in June. Other lenders to DHFL include Bank of India, Central Bank of India, Andhra Bank, Canara Bank, Punjab National Bank and Corporation Bank. As of December, DHFL had an outstanding debt of ₹1 trillion, of which 38% was in the form of bank loans, 47% from debt markets and 10% through deposits.