7 August 2019: Troubled housing finance company DHFL has submitted a debt-resolution plan, which lenders have described as hard to accept. The reason is that the plan involves giving the borrower time to repay and more money to do business in the hope that future earnings will be adequate to repay loans without any haircuts. It does not have any concrete investment proposal from a new lender.
A banker said that there were several challenges in implementing a resolution plan for DHFL. Even if wholesale lenders like banks agreed to wait, there was a possibility that retail investors, mutual funds and provident funds would sue and derail the process. Lenders were not willing to provide DHFL loans merely to repay retail investors. They also want a change in the management in keeping with the principles of the Insolvency and Bankruptcy Code, even though the same is not applicable to finance companies.
According to the results filed by the company, as of March 31 this year, it had R 45,000 crore of debt securities outstanding, Rs 40,600 crore of borrowings and Rs 6,588 crore of deposits. Total liabilities stood at Rs 98,199 crore. The auditors had questioned the recoverability of thousands of crores of loans to developers. A big chunk of bonds are coming up for redemption in the October-December quarter, which the company — given its current financials — is unable to repay. On the stock exchange, the DHFL stock soared 32% to Rs 55 on hopes of the company getting back on track. However, many lenders do not share the market’s optimism as they said that any haircut should first be taken by shareholders.