Committee of Creditors likely to meet on December 23 again to evaluate DHFL bidders, wants more clarity from contenders

To be sure, the CoC is not just looking at the overall bid amount but multiple components including upfront payment, non-financial aspects such as bank guarantees, the background of the bidder and experience in the business, insurance component besides a convincing balance payment schedule. “There is not one single component that will decide the winner,” said the banker quoted above.

Even the overall bids may not be final as the bidders have an ongoing dialogue with CoC wherein the bid sizes are revised and new offers are made. Right now, both Piramal and Oaktree are caught in an aggressive chase with both parties unwilling to let go of the mortgage lender.

DHFL’s brand and customer base are a big attraction to bidders. With respect to the insurance business of DHFL, there is a possibility that the winning bidder may look at a separate holding structure to comply with the local laws.

“It is totally up to the CoC to choose the winner. It may not be the overall bid alone but also the comfort of lenders on the party,” said the person quoted above.

Banks stare at huge haircut

No matter who wins the bid, bankers of DHFL will have to forget a good chunk of their money in the form of haircut. Roughly, around Rs 90,000 crore of the bank money is at stake. Almost all big lenders have exposure to the housing lender.

State Bank of India has the biggest share—around Rs 10,000 crore. Bank of India has around Rs 4,125 crore exposure to DHFL, Canara Bank Rs 2,681 crore, NHB Rs 2,434 crore, Union Bank of India Rs 2,378 crore, Syndicate Bank Rs 2,229 crore and Bank of Baroda Rs 2,075 crore. Indian Bank has an exposure of Rs 1,552 crore, Central Bank Rs 1,389 crore, IDBI Bank Rs 999 crore, and HDFC Bank Rs 361 crore. These figures may have changed by now to account for accrued interest.

But for DHFL’s lenders, any recovery is good since banks at one point weren’t expecting anything from the troubled lender.

How did DHFL fail?  

At one point, DHFL was a big name in the pure-play mortgage business. The story is, in some way, similar to the Kingfisher-Vijay Mallya case. Banks lent to Mallya just on the basis of his name, not the airline’s cash flows. Similarly, DHFL’s promoter Kapil Wadhawan was a name banks wouldn’t dare to ignore in a tight competitive loan market. Bank officers used to queue up at Wadhawan’s office (Read an earlier piece at Moneycontrol ).

DHFL’s business was booming and some analysts even secretly called it the next HDFC. The glory was short-lived. Towards late 2018, DHFL began showing signs of liquidity crunch. Post the IL&FS mayhem, rumours of defaults by the mortgage lender began to float around. In July-August, 2019, DHFL defaulted on a series of payments. And all hell broke loose.

The crisis, a result of years of mismanagement and dangerous over-leveraging by Wadhawans, weighed DHFL down. Liquidity became scarce. When the mess deepened, the RBI superseded the board on November 20, 2019, and later pushed the firm to the NCLT for insolvency resolution 10 days later. The company was admitted for IBC proceeding on December 3, 2019.  The writing on the wall was clear.

Kapil Wadhawan allegedly created a string of shell companies to facilitate illicit financial transactions and purchased prime properties belonging to Iqbal Mirchi’s family in Mumbai’s Worli area. Wadhawans also routed money from DHFL to the shell companies in which Kapil had a share. DHFL, at one stage, was used like a piggy bank by Wadhawans who had unquestionable control over it.

Banks will be lucky if they recover a part of their exposure to DHFL. They can’t expect much and don’t have a choice but to accept what they get at the end of the auction.