Lenders to India’s Dewan Housing Finance Ltd (DHFL) are prepared to accept limited haircuts as part of a debt restructuring plan being worked out for the troubled firm, said sources involved in talks.
The country’s fourth largest housing finance company, which warned on Saturday that its financial situation was grim and business had ground to a halt, met with lenders and other debtholders last week to discuss the contours of the rescue package.
Sources at banks, mutual funds and the company told Reuters efforts were being made to arrive at a consensus and sign off on the plan that is set to be formally submitted by the firm to its lenders later this week.
‘Even if we must end up taking say around a 20 per cent haircut on the commercial loan part of the book which is big, it is still manageable,’ a banker who attended the meeting said. The banker and other sources asked not to be named as they have not been authorised to discuss the matter with media.
DHFL’s plight underscores the growing stress in India’s financial sector as state-owned banks are grappling with nearly $150 billion of bad debt, even as the country’s shadow banking industry has been brought to its knees by a liquidity crunch following the collapse of infrastructure lender Infrastructure Leasing & Financial Services Ltd last year.
The housing finance firm, however, said on Monday it was working with stakeholders and creditors to ensure a resolution plan without its lenders having to take a haircut. And despite defaulting on certain payments as late as last week, DHFL said it was confident of securing fresh credit lines from lenders and restarting its lending operations as early as in August.
It had total debt of nearly 1 trillion rupees ($14.57 billion) as of end-March, including around 400 billion rupees to banks. India’s biggest lender State Bank of India and subsidiaries have an exposure of 190 billion rupees to the company.
DHFL is in talks to sell both its retail and wholesale loan portfolio and is also looking for an equity infusion by bringing in a strategic partner and is in final stages of completing the deal, a senior official involved in the restructuring talks said.
The founder’s family, which currently owns just shy of 40 per cent in DHFL, is looking at halving its holdings, the source added.
DHFL is looking at a net cash infusion of 60 billion rupee ($875 million) to 70 billion rupee ($1.02 billion) from the new equity investor, he added.
‘They cannot let DHFL fail because its business is widespread,’ the head of investments at a fund which holds DHFL securities and who attended the lenders’ meeting said.
But even if the lenders agree to a rescue package for the debt-laden firm, a plethora of regulatory approvals and a disparate array of debt-holders pose significant hurdles in the implementation of the plan. DHFL’s creditors include mutual funds and bondholders, whose interests may vary from those of banks.
According to Indian regulations, three-fourths of lenders by value of outstanding credit facilities to a troubled company and 60 per cent by number must agree on a rescue plan for it to be binding.
Furthermore, market insiders said uncertainty around DHFL’s restructuring is intensified by its disclosure that its regulator has concerns about DHFL’s historical capital adequacy ratio, and the fact that its auditors are yet to sign off on its results for the year ended March 31, 2019.
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