20 August 2019: Bankers have proposed in the resolution plan that Kapil Wadhawan should step down as chairman and managing director of the cash-strapped Dewan Housing Finance Corporation Ltd (DHFL) and that his existing stake be brought down to below 10%.
The resolution plan, which is still being worked upon and awaits final nod from all categories of lenders, wants the existing management to step away.
As per the resolution plan, the promoter would also be required to pledge a part of their remaining stake to lenders (which would be below 10%), a banker close to the developments told FE.
Promoter group holding in DHFL is 39.21%. Only last month, mutual funds had refused to take an out-of-turn haircut. In case of insolvency proceedings, losses are apportioned between equity shareholders, preference shareholders, perpetual-Tier-II bond holders and unsecured lenders. After these four categories have apportioned the losses, then the secured lenders also end up taking a similar proportion of haircut.
While MFs are still awaiting the Securities and Exchange Board of India’s nod to become signitories to the the ICA, they insisted that the resolution plan should follow the law. Bankers are concerned that any possible legal action from MFs could be detrimental to the resolution process.
A banker aware of the developments said: “Lenders are very clear on wanting a change of management. In the immediate future, we have proposed that the promoter step down and banks take over operations until a new investor takes charge. As far as banks taking control is concerned, we are very comfortable with the idea.”
Other terms of the resolution plan include segregation of bad debt into a fresh entity or instrument. This so-called ‘bad’ debt—Slum Rehabilitation Authority loans and developer loans could get converted to an equity, or semi-equity instrument like Cumulative Redeemable Preference Shares (CRPS). Thereafter, part of the good debt within DHFL could also further get converted to equity from debt, the banker said.
“At the end, DHFL will largely be left with its retail portfolio and what is considered good quality business, which is also what most investors who have shown interest in the company are attracted to,” the source added.
It is unclear whether bankers have already in talks for a new investor, though it is largely understood these terms will be put forth to shareholders of the company in September.