20 June 2019: Mortgage lender Dewan Housing Finance Ltd (DHFL) has sold ₹2,000 crore worth of its loan portfolio to offshore investors in a transaction led by SC Lowy, a privately-held banking group headquartered in Hong Kong, two people aware of the development said.
“The sale proceeds will be used to meet immediate debt repayment obligations by DHFL,” said the first of the two people cited above, both of whom spoke on condition of anonymity. Requests for comment sent to DHFL and SC Lowy, which focuses on credit markets especially in the distressed debt segment, remained unanswered till press time.
On 4 June, DHFL defaulted on interest payment to the tune of ₹850 crore on its non-convertible debentures, following which its credit rating was downgraded to default or D by rating agencies Crisil and Icra. However, DHFL was subsequently able to make the interest payment within a seven-day grace period given by the bond holders.
In regulatory filings, DHFL has said that it has repaid close to ₹40,000 crore of its financial obligations since September and that it remained committed to meeting all debt obligations in a timely manner.
Since December, DHFL has also sold several of its strategic retail assets, including affordable housing arm Aadhar Housing Finance Ltd, educational loan business Avanse and DHFL Pramerica Asset Managers.
In January, DHFL sold ₹1,375 crore of wholesale loans to foreign alternative investment management fund Oaktree Capital, which buys distressed loan portfolios at a discount.
“Understandably, the portfolio will be sold below its book value, to give higher rates of return to the purchaser,” said the first person cited earlier. However, the transaction is structured in a fashion that will allow DHFL to sell the loans at face value to a specially created trust, the first person said. “DHFL will then invest in units of the trust and progressively write off the value of this investment over an extended period, assuring the hedge fund a higher return.”
According to DHFL’s annual report, it had short-term borrowings of ₹8,812 crore in FY18, double the ₹4,268 crore in the previous fiscal.
As of December, DHFL had assets under management of ₹1.26 trillion, lending to over half the market of low and middle formal income home loan borrowers.
In May, DHFL announced that it had stopped accepting fresh public deposits and renewals of existing deposits with immediate effect.
Global private equity firm Blackstone Group bought a 97.7% stake in Aadhar Housing for about ₹2,200 crore in May. Both Wadhawan Global Capital and DHFL were part of the promoter group of Aadhar Housing.
In the past, SC Lowy has bought distressed debt from India from both domestic and foreign lenders. One of its high-profile acquisitions was part of Essar Steel’s debt that it bought from state-owned lenders such as Bank of Baroda at a sizeable discount of 50-70 cents to the dollar.
Michel Lowy, chief executive officer of SC Lowy, has said previously that the firm would engage directly with promoters of stressed companies to buy out their loan portfolios.