23 Jan 2020: Indian lenders set preliminary terms for companies wishing to bid for Dewan Housing Finance Corp.’s assets, people with knowledge of the matter said, as the nation’s bankruptcy courts attempts to resolve its first shadow bank insolvency.
The assets have been divided into three groups — mortgages, loans to builders of government-assisted housing, and project financing, the people said, asking not to be identified because the discussions are private. They have set minimum net worth and asset requirements for the bidders in each category, the people added.
The debt resolution process for Dewan Housing is being closely watched because it’s likely to create a precedent for other shadow lenders affected by the crisis which broke out in 2018 with a series of defaults at a major infrastructure lender. Dewan Housing, which has a market capitalization of ₹500 crore ($70 million), reported a ₹6,640 crore loss for the quarter ended Sept. 30 late on Wednesday.
Dewan was one of the worst affected by the crisis, prompting the Reserve Bank of India (RBI) to take over management of the company in November and start bankruptcy proceedings. Representatives at Dewan and Union Bank of India, which is leading the creditor’s group, didn’t immediately respond to emails seeking comment.
Bidders for the mortgage loans will need a minimum net worth of ₹3,500 crore and ₹10,000 crore of assets under management, the people said. While investors for the builder’s loans taken out under the government’s slum rehabilitation program require net worth of ₹500 crore and assets under management of ₹1,000 crore, one of the people said.
For project loans, the requirement is ₹1,000 crore of net worth and ₹4,000 of assets under management, the person added.
The decision was taken at a lenders meeting last week, at which advisory firm Grant Thornton was appointed to conduct an audit of Dewan’s transactions, the people said. The lenders also appointed real estate specialists JLL India and RBSA Advisors to value Dewan’s assets and give them an assessment of the losses they are likely to face, the person added.
Dewan Housing has about ₹3,800 crore in outstanding inter corporate deposits, the company said in a filing Wednesday, adding that it’s uncertain the amount can be recovered. It has set aside ₹2,400 crore as provisions to cover this.
“The company is undergoing substantial financial stress since second half of the previous financial year,” Dewan Housing said. “As a result, the company’s ability to raise funds has been substantially impaired and the business has been brought to a standstill.”