Dewan Housing Finance Corporation, the stressed financier, and its lenders are set to meet on Wednesday to discuss the draft resolution plan. The company will also hold a meeting with all institutional creditors, including mutual funds, on September 27. According to banking sources, the agenda of the meeting is to get all lenders together on the same page over the resolution plan.
Bankers have also indicated they will wait for the company’s AGM to secure shareholders’ approval on bankers taking over a majority stake in the company and existing management stepping back. “After bankers take over, we will consider infusion of capital to ensure the company remains a going concern. For the moment the company has its internal cash flows, for which we have appointed Alvarez and Marsal to oversee cash flows.”
DHFL along with the lenders are also expected to discuss the possibility of the government referring DHFL for bankruptcy proceedings under Section 227 of the Insolvency and Bankruptcy Code (IBC), as majority of the bond holders have not given their consent to the resolution plan. In view of previous defaults, exposure of certain banks to DHFL is expected to turn into a non-performing asset this quarter.
Section 227 of the IBC states that the central government may, in consultation with the appropriate financial sector regulators, notify financial service providers or categories of financial service providers for insolvency and liquidation proceedings. Earlier this week, Injeti Srinivas, secretary, ministry of corporate affairs, reportedly said the government was in consultation with regulators on possibility of a separate special framework to bring specified financial service providers under IBC.
The upcoming meetings come amid a potential threat to implementation of the resolution process as the debenture trustee to DHFL non-convertible debenture (NCD) issues gears up to file applications with the Debt Recovery Tribunal (DRT) to recover dues in three public issuances.
Catalyst Trusteeship is the trustee for nearly 87,000 retail and institutional bond holders of DHFL, including some gratuity and pension funds. It was working on an exercise to determine whether debenture holders would consent on acceding to the inter-creditor agreement on a series wise basis. However, out of communications sent to almost 87,000 debenture holders, it only received responses from 24,400 of them. Catalyst is a trustee to 34 issues of debentures issued by DHFL, of these issues it has received “consent above the threshold level” in 14 of these series where the trustee has initiated the process of acceding to ICA.
Of the remaining 20 issues, three are public issues where as per regulatory requirements, Catalyst will file an application with DRT for recovery of money while it awaits instructions for further action from the 17 privately placed non-convertible debenture holders. A senior banker told FE, “The looming DRT proceeding is, of course, a threat to resolution of the account. It will remain a challenge until we can finally implement the resolution plan successfully.”
Mutual funds believe that if the government takes charge of process under Section 227 of the Insolvency and Bankruptcy Code (IBC), it would be a positive for lenders. The head of fixed income at the top fund house has said that the fund houses are keeping all options open. In light of this, the meeting called by DHFL on September 27 to discuss the issue is significant. Till this meeting happens, the mutual funds are keeping their options open as the “resolution plan is not fair to the funds” and that they plan to take the matter to court.
Another fund manager who has invested in debt instruments issued by DHFL said, “There are reports that government is planning to take charge of process under Section 227 of the Insolvency and Bankruptcy Code (IBC) and that will be better for all the lenders. Some fund houses have marked down their investments by 75-100% and if process goes through IBC we hope to get our remaining money quickly.”
So far only bankers within the core committee have worked on the resolution plan along with company officials. In the upcoming meeting, all the lenders will be apprised of the plan. “We want to finalise the finer details of the resolution plan and work on a framework on future actions with all the lenders that have signed the ICA,” a senior banker told FE. The banker stated that the resolution plan had also been shared with the regulators—Reserve Bank of India, Securities and Exchange Board of India and the Insurance Regulatory and Development Authority of India, given that “this is new territory and in view of the fact that the resolution plan has been worked on under the June 7 circular with no option as yet at least to take the company to NCLT.”
Lenders have until 180 days from July 5 to ensure implementation of the resolution plan as mandated under the RBI circular on resolution of stressed assets, sources said.
Source: Financial Express, September 26, 2019