Creditors of Dewan Housing Corporation Ltd (DHFL) will receive the money within three working days from Piramal Capital and Housing Finance Limited after the latter won a bidding contest for the troubled housing financier, three people with knowledge of the matter said.
The money will boost the creditors’ earnings for the quarter ending September 2021.
Since bank lenders have written off their entire debt to DHFL, the recovery will reflect in their earnings for the quarter ending September, the people said. Financial creditors including the trustees of the DHFL bonds, Catalyst Trusteeship, and IDBI Trusteeship Ltd, will start signing the documents from this evening.
The next steps
The resolution plan– which involves Piramal Capital taking over DHFL and making payments to lenders- can be implemented in full only after 90% of the financial creditors sign the execution documents, one of the people said.
At least three creditors—State Bank of India, Union Bank of India and Catalyst Trusteeship—which make up 58% of the shares, will be signing the documents today evening at DHFL’s corporate office in Mumbai, one of the people said. Other large creditors are Bank of India, Canara Bank and Bank of Baroda.
Piramal Capital & Housing Ltd, is a subsidiary of billionaire Ajay Piramal-promoted Piramal Enterprises Ltd.
The NCLT-approved plan shows 93.65% of financial creditors voted in favour of Piramal Capital & Housing Finance’s Rs 37,250 crore resolution plan. This will be the second-largest payment to lenders after Essar Steel’s Insolvency & Bankruptcy Code-driven resolution process. ArcelorMittal and Nippon Steel paid Rs 42,000 crore for the Ruia family promoted-Essar Steel in December 2019 under the IBC driven resolution process.
Lenders and Piramal Capital have been working on the execution of the documentation for the last 10 days in order to complete it before the end of this quarter, the three people quoted above said.
To conclude the transaction by this month-end, financial creditors agreed to set aside Rs 2,350 crore of claims made by the National Housing Bank (NHB) for DHFL until a dispute over the distribution of proceeds is resolved, one of the three people said. NHB has claimed that it has the right to receive the proceeds of DHFL on a preferential basis; however other financial creditors have disagreed, the first person said.
Of the Rs 37,250 crore offered to creditors, Rs 12,700 is upfront cash payment; Rs 3,000 crore of interest income earned by DHFL during the corporate insolvency resolution process CIRP and Rs 19,550 crore in the form of 6.75% non-convertible debentures due 2031 with an option to repay after five years, according to the resolution plan
To finance the acquisition, Piramal Capital has arranged a Rs 4,500 crore loan from Barclays Bank Plc and a Rs 9,000 crore loan from Standard Chartered Plc to pay lenders, according to the resolution plan approved by the National Company Law Tribunal.
DHFL’s administrator R Subramaniakumar admitted Rs 87,247 crore of claims from 77 financial creditors which includes claims from debenture trustees, according to the company’s website. For lenders, the recovery would equate to 43 paise on a rupee.
The winning bidder, Piramal Capital, was required to make payments to creditors by September 5- within 90-days of approval from NCLT, according to the NCLT order. However, this was delayed initially with NCLT also ordering the committee of creditors to consider higher payment to fixed deposit holders and later due to 63 Moons Technologies questioning the legality of Piramal’s plan.
The financial services provider, founded by entrepreneur Jignesh Shah, held Rs 200 crore of bonds issued by DHFL.
While a committee of creditors opted against the higher distribution of proceeds to the fixed deposit holder who voted against the plan, the Supreme Court on 6 September refused to stay the implementation of the resolution plan of DHFL but directed the appellate tribunal to complete the hearing of Jignesh Shah’s 63 Moons within two months.
Troubled shadow lender
The Kapil Wadhawan-promoted DHFL, the only finance company that has been admitted for corporate resolution under the IBC, was mired in several controversies including 250,000 fake home loan accounts at a non-existent branch at Bandra and dealings with Yes Bank promoter Rana Kapoor, according to media reports.
The majority of lenders voted in favour of Piramal Capital and Housing’s bid amidst fierce competition from Oaktree Capital. Adani Properties Pvt Ltd, in partnership with Nirjara Pedestal Pvt Ltd. also submitted a resolution plan. Oaktree gave a Rs 35,700 crore resolution plan through its vehicle- India Opportunities Investments Singapore Pte Ltd -- while Adani offered Rs 32,865 crore, people familiar with the development said.
Kapil Wadhawan, who is in Taloja jail in Mumbai since January 2020 on charges of money laundering, too offered Rs 90,000 crore to lenders, according to media reports. On 19 May, NCLT ordered financial creditors to consider Wadhawan’s offer and decide in 10 days, a ruling stayed by the NCLAT.Piramal Capital did not respond to the request for comment.