DHFL bidding war nears climax; Piramal makes a strong pitch for the mortgage firm

The intense bidding war for Dewan Housing Finance Corporation (DHFL) has entered the last lap. By January 14, creditors of DHFL will complete the voting on bids submitted for the mortgage lender following which the committee of creditors (CoC) will meet again to decide the winner likely by the end of January. That will end the long bidding war for the crisis-ridden mortgage brand.

Besides the financial aspects, creditors will also evaluate the non-financial part of the bids as well such as regulatory compliance, company track records and future action plan etc, according to officials who are in the know. Piramal holds a clear edge over Oaktree at this point.

Piramal’s 10 points:

The claims and counter-claims for DHFL have intensified. On Monday, Piramal Group, the front-runner for DHFL, listed out ten factors to bolster its claim that its bid has more value compared with that of rival Oaktree. Both Piramal and Oaktree have made bids in the range of Rs 37,000-38,000 crore for the assets for DHFL. The cash components are also almost identical, at about Rs 17,000 crore each.

In its latest statement, Piramal fiercely contested that its bid has more merit. Piramal offers the higher upfront cash and has the highest score on the COC-mandated scorecard, it said. Also, Oaktree’s offer has multiple legal issues such as the ones on the insurance business of DHFL and claims on the rating of their instruments, Piramal said. “Oaktree is infusing very little equity into the business, which leads to very low capital adequacy of DHFL post purchase; this is likely to be questioned by RBI,” Piramal said in a statement.

Making a strong pitch, Piramal said it has also followed all the process guidelines so far and has not violated any norms laid out by the COC: e.g. all final bids have been submitted within prescribed bid limits. “The competing bidder sent out a letter two days after formal closure of bid, adding to their bid amount, a move that violates the laid down process and would be open to legal questioning,” it said.

Insurance business

Piramal said its bid has an implementable straight offer of Rs. 1,000 crore for the Insurance business, payable at DHFL level. This is unlike the Oaktree offer which is payable at the level of a subsidiary (DIL), with no clear path to extract that amount for the benefit of the DHFL lenders.

“Oaktree bid creates Rs 9,000 crore of sub-debt to one of their subsidiary companies. This is expected to get paid out through cash flows of DHFL. The structure allows DHFL cash flows to be repatriated out of India before any DHFL credit starts getting repaid. There is no such sub-debt structure in the Piramal offer,” said Piramal in the statement.

Explaining further, Piramal said it is infusing Rs. 3,800 crore of equity into DHFL, with another Rs. 16,000 cr available in the Financial Services business for future. Oaktree is only infusing Rs. one lakh now, with a promise of Rs 1,000 crore of either debt or equity in the future.

“This is too low for a balance sheet of the size of DHFL. The Piramal bid has offered Rs. 150 crore especially to FD holders, to be offered over and above the regular allocation that might be done to them by the COC. 9. Implementation Timelines in the Piramal plan likely to be much shorter, as insurance-related complications don’t exist. This reduces the open-ended commercial risk for lenders on interest income,” Piramal said.

The diversified Indian conglomerate stressed that it is an Indian company, with strong ties with Indian society, and over Rs 30,000 crore of equity invested in India at this point.

DHFL awaits new owner

DHFL collapsed under the weight of a severe liquidity crunch after the collapse of IL&FS in late 2018 and couldn’t recover from the low point subsequently.

Adding to its woes, investigations were launched against the Wadhawans on various charges relating to financial irregularities and unholy nexus with the underworld in relation to certain real estate transactions. Subsequently, DHFL was pushed to the NCLT court in December 2019. Since then, the creditors to the company are attempting for a resolution. They haven’t been successful so far.

DHFL owes around Rs 91,000 crore to its creditors. State Bank of India is the biggest creditor to DHFL with an exposure of around Rs 10,000 crore. Other lenders include Bank of India, Canara Bank, NHB, Union Bank of India, Syndicate Bank, and Bank of Baroda.