Banks want SEBI to relax norms to enable MFs and debenture trustees to get DHFL resolution on track

Banks have urged market regulator SEBI to relax norms for mutual funds (MFs) to sign the inter-creditor agreement and ensure participation by debenture holders to get the resolution process for DHFL on track.

“It is necessary that the resolution plan is collectively agreed and implemented by a cohesive group of lenders as it would otherwise hurt all investors and also have systemic repercussions,” noted a person familiar with the development.

SEBI had, on August 29, allowed mutual funds to join the resolution process of DHFL and sign the ICA. However, many mutual funds and debenture holders have been unable to sign the pact, creating uncertainty about the timely implementation of the process.

In a representation to SEBI, banks have called for a one-time exception to MFs, allowing them to segregate portfolio at the time of signing the ICA.

A SEBI circular dated December 28, 2018, said the decision of segregation of portfolio should be taken on the day of credit event, but many MFs were unable to do so as the SEBI permission came after the default.

They have also sought relaxation in voting mechanism for debenture trustees as just 62 per cent of the catalyst trustees have given their approval till now against the requirement of 75 per cent. Banks have asked SEBI to issue instructions that the response should be counted based on the number of responses received in a meeting, or through e-voting process on present and voting basis rather than on total outstanding.

With many debenture trustees also planning to take legal action, including going to the Debt Recovery Tribunal, lenders have also asked that SEBI should instruct them to sign the ICA and participate in the resolution process. Banks have sought relaxation in the approval process for the restructuring of debentures as options such as extinguishment of existing debenture for new series of debentures held or issued by DHFL, or new entity and roll-over of existing debentures are being considered as part of the resolution process.

They have sought clarification on whether debt securities of debenture holders who have not given positive consent can be redeemed by payment of the liquidation value. As lenders are looking to restructure the debt of DHFL, based on projected cash flows into sustainable and unsustainable debt, they have also asked SEBI for permission to issue unsecured debentures with appropriate clauses for protection of interest of debenture holders.

Similarly, with plans to redeem the existing NCDs of DHFL and issue new NCDs matching the cash flows, banks have asked permission to redeem debt securities that are prematurely recalled by issuing new NCDs.

They have also sought exemption for listing and issuing such non-principal protected non-market linked non-convertible debentures by banks to help tide over the uncertain cashflows of DHFL.

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