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Banks are hopeful of implementing the resolution plan for troubled Dewan Housing Finance Corporation (DHFL) by December this year, and are likely to give it some emergency funding for now.
“There is enough time for the resolution to take place within the Reserve Bank of India’s 180-day timeline. There are some issues, but lenders are hopeful of addressing the issues,” said a banker close to the development.
ICA agreement
Sources said that banks could provide DHFL with a working capital loan of about ₹5,000 crore to ensure that its operations continue. The inter-creditor agreement (ICA), which lenders enter into for the resolution of a stressed asset, has been signed by banks and almost all insurance companies that have an exposure to DHFL.
However, mutual funds and provident funds are yet to sign the ICA.
As for retail holders of DHFL’s debt, some of them have authorised their debenture trustees to sign, while some have not done so.
The ICA establishes the ground rules for finalisation and implementation of the resolution plan (RP) in respect of borrowers with credit facilities from more than one lender. Under this agreement, any decision agreed to by lenders representing 75 per cent by value of total outstanding credit facilities (fund-based as well non-fund-based), and 60 per cent of lenders by number, shall be binding upon all the lenders.
DHFL will be meeting the lenders again this week to get a buy in from them on the RP and take the resolution process forward.
Total exposure
The total exposure of the banking sector to financially-stressed DHFL is estimated at about ₹46,000 crore, including about ₹32,000 crore direct (loan) exposure and about ₹14,000 crore by way of investments in debt instruments issued by the company.
According to bankers, strategic investors will pick up stake in DHFL only if the RP works, with the retail portion of the loan book being segregated from the wholesale portion and liability restructuring taking place.
Meanwhile, talks are also on with bondholders to join the ICA and become a part of the RP. Some mutual funds are understood to have become agreeable to supporting the RP.
The deadline for approval of the RP is September 25, and talks are on to reach some sort of an agreement between the lenders.
In a regulatory filing after a board meeting on September 19, DHFL had said that it is working on the RP and that it expects more support from lenders.
“We expect further strides in gaining acceptance of a larger fraternity of lenders to join the inter-creditor agreement and give definitive acceptance to the RP,” it had said.
Focus on retail operations
The housing finance company is looking to solely focus on its retail operations, and has received proposal from developers to “act as development managers in respect of certain large projects including projects under Slum Rehabilitation Scheme where the company has extended loans in the past”.
“The company has also made significant progress in bringing in investors’ interest in certain projects for extending fresh working capital to get the projects moving towards completion stage,” DHFL had said in the filing, adding that both these measures would enable a large part of the project finance portfolio to yield faster cash flow and better turnaround time to improve the payback.
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