It has been almost a year since the troubled Dewan Housing Finance Corp. Ltd (DHFL) was sent to insolvency proceedings, the first finance company to come under the code.
The creditors’ committee has held 11 meetings so far and a 12 was at the time of this writing. The latest meeting comes in the wake of a surprise offer by DHFL.
An Adani Group company now wants to buy DHFL locks, stocks and barrels for an amount greater than the highest bid of ₹31,000 crore made by Oaktree Capital so far, according to a Mint report.
The company, which originally wanted to buy only DHFL’s wholesale loan book for about ₹Rs 3,000 crore, he submitted his revised offer after the deadline.
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The DHFL promoter has also offered to pay 100% of the principal amount of the bank loans and also to other financial creditors. Kapil Wadhawan, currently in prison on charges of financial wrongdoing, has said that the offers so far do not reflect the financier’s true value.
The lenders had undoubtedly asked the bidders to review their offer at a meeting in October.
After all, at the heart of insolvency law is the principle of obtaining the maximum value of an asset for sale.
This is best for the lenders in terms of DHFL recovery. There are multiple reasons for this.
Since DHFL became insolvent, the COVID-19 pandemic has affected businesses and lenders across India. Even DHFL saw about 28% of its loans defaulted as of June, and collections have fallen.
The real estate sector is still struggling to recover and the pressure on the books from developers continues. It is natural for bidders to be careful in their appraisals of a lender who has a troubling record of corporate governance.
A Grant Thornton forensic report had found several unexplained transactions on DHFL’s books.
Also, a potential buyer is unlikely to shell out a large sum to bankers as a down payment.
In fact, the plans of the four bidders have only a small percentage as starting money. Much of what banks can recoup would be staggered and shared with the income generated by the business over time.
“Whoever invests in DHFL is not going to settle with creditors up front in a big way. Most of the plans involve staggered payments to lenders of internal company accruals, “said a consultant who requested anonymity.
Perhaps the lenders know this and are preparing to select one bidder among the four rather than asking for more.
Whichever company DHFL turns to, creditors face a cut of no less than 70%. Considering the provisions banks have made against their exposure to DHFL, it seems they have made peace with it.
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