Financially stressed Dewan Housing Finance Corporation Ltd (DHFL) said 2.3 per cent of each category of lenders' debt exposure to it will be converted into equity at an assumed price of Rs 54 per equity share, as per the Corporation's proposed resolution plan.

What does this mean ?

What this means is that 2.3 per cent of bank's exposure of Rs 38,342 crore will be converted into equity (Rs 871 crore). Similarly, 2.3 per cent of non-convertible bond holders' (includes mutual funds, insurance companies, pension funds) exposure of Rs 30,616 crore will be converted into equity (Rs 695 crore).

Also read:Banks hopeful DHFL resolution plan will be implemented by December

The same debt to equity conversion formula will apply to external commercial borrowings (exposure: Rs 2,747 crore), the National Housing Bank (Rs 2,350 crore), and holders of perpetual debt (Rs 1,263 crore), commercial paper (Rs 100 crore), subordinated debt (Rs 2,267 crore).

Following this debt conversion at Rs 54 per equity share, lenders' will acquire 51 per cent stake in DHFL. It remains to be seen if lenders' will be agreeable to the conversion at the proposed price as DHFL's closing price on Friday was Rs 42.25 apiece on BSE. The plan was silent on the proposal to rope in a strategic investor.

As per the resolution plan, carve-outs/ approvals for such carve-outs in respect of any asset portfolios of the company may be undertaken.

Investors in public deposits, however, could be aggrieved as the balance deposits after October 31, 2019, are proposed to be restructured over 10 years with 'NIL' interest rate. The plan said deposits payable till October 31, 2019, have been assumed to be paid with existing interest rate. The current outstanding in the public deposit category is Rs 6,188 crore.

The plan has mapped projected cash flows from each category of assets to various categories of liabilities.

So, projected cash flows from "existing retail assets" have been mapped to liabilities, including public deposits, term loan (TL) -1 (Banks and NHB), NCD - 1 (Banks and NHB), TL -2 (ECBs), and NCD -2 (public NCDs), aggregating Rs 34,802 crore, with a proposal to repay the liabilities over a 10-year period beginning FY2020.

The return on investment (ROI) on public deposits (Rs 6,188 crore) and NCD -1 (Rs 2,358 crore) mentioned above is 'NIL'. What this means is that this category of debt holders will only get their outstanding debt back. The ROI on TL-1 (Rs 13,364 crore) is 10 per cent and on TL-2 (Rs 1,062 crore) and NCD-2 (Rs 11,830 crore) is 8.50 per cent each.

The projected cash flows from "project and mortgage loans" have been mapped to liabilities, including term loans -3 (ECBs): Rs 444 crore, NCD - 3 (Banks, NHB and NCDs): Rs 11,536 crore, aggregating Rs 11,980 crore, with a proposal to repay the liabilities over a 10-year period beginning FY2020. In this case, an internal rate of return of 8.50 per cent has been proposed with step-up interest rates.

The projected cash flows from "other projects" have been mapped to liabilities, including term loans -4 Secured (ECBs), NCD-4 Secured (Banks, NHB and NCDs), and holders of project linked debentures (PLD): Unsecured, aggregating Rs 35,326 crore, with a proposal to repay NCD and TL over a nine-year period and PLD over 21 years beginning FY2020. The return on investment on the these liabilities has been pegged at 0.0001 per cent.

Lenders had an exposure of Rs 83,873 crore to DHFL as on July 6, 2019. Currently, the Corporation's loan assets comprise of retail loans of Rs 35,233 crore, wholesale loans of Rs 47,610 crore, and other assets of Rs 6,633 crore.

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