DHFL's bondholders get three-week deadline to be on board with rescue plan evaluated by banks

  • The banks have signed an inter-creditor agreement to come up with a plan to restructure nearly $14 billion of DHFL’s debt

  • Now, the bondholders have to communicate by letter by 26 August if they are willing to be part of the ICA

  • DHFL has already submitted a resolution plan to its committee of core creditors, which is currently being evaluated

Mumbai: Bondholders of troubled shadow lender Dewan Housing Finance Ltd (DHFL) have been given a three-week deadline to decide if they are on board with a rescue plan being evaluated by banks, according to a letter sent by a custodian of DHFL bonds, seen by Reuters.

The banks have signed an inter-creditor agreement (ICA) to come up with a plan to restructure nearly 1 trillion rupees ($14 billion) of DHFL’s debt.

 DHFLs bondholders get three-week deadline to be on board with rescue plan evaluated by banks

Representational image. Reuters.

Now, the bondholders have to communicate by letter by 26 August if they are willing to be part of the ICA.

That turns up the heat on India’s mutual funds, which hold DHFL paper and are scrambling for approval from the market regulator to join the ICA.

While insurers and pension funds have clarity from their regulators and are likely to be on-board with the ICA, mutual funds are yet to get a green light from the Securities And Exchange Board Of India (SEBI), industry sources said.

Resolution woes

Last week DSP Mutual Fund, one of the creditors of DHFL, said it had initiated legal action against the housing finance company as 50 percent of its dues remained unpaid. Since then there have been concerns that others may also take a similar step, delaying the resolution process.

“The signing of the ICA ensures that the parties then can not take any legal action against the company and that is one of the concerns at the moment,” said one of the bondholders who had received the letter, requesting anonymity.

According to central bank regulations, a resolution plan can only go through if three-quarters of lenders by value of the outstanding credit and 60 percent by number have agreed to it, making it critical for the bondholders to be on-board with the plan.

There are approximately 86,000 non-convertible debenture holders and about 300 institutional bondholders, including mutual funds, provident funds, insurance companies and pension funds, according to media reports.

DHFL has already submitted a resolution plan to its committee of core creditors, which is currently being evaluated, according to banking sources.

DHFL, one of the largest housing finance companies in India ran into trouble last year soon after the collapse of IL&FS, another large shadow bank. Troubles at both firms have sent the entire non-banking financial companies sector into a tailspin.

Updated Date: Aug 06, 2019 07:09:33 IST