DHFL's resolution plans hit roadblock; bondholders take debt-laden shadow lender to bankruptcy court

The resolution plans of debt-laden shadow lender Dewan Housing Finance Corporation Ltd (DHFL) have hit a roadblock after the custodian of DHFL bonds said on Thursday it is taking the firm to bankruptcy court on behalf of certain debenture holders. The application was filed on 16 October in the Mumbai Debts Recovery Tribunal to claim 268.61 billion rupees ($3.8 billion), it said. Catalyst, the trustee or custodian of those non-convertible debentures under public issue, is acting on behalf of investors, a report in The Economic Times earlier said. The claim is “for recovery of the amount of debentures outstanding, along with interest, for and on behalf of all debenture holders under all the three public issues,” the custodian said. DHFL was not immediately available for comment. Apart from banks, DHFL also owes money to about 87,000 bondholders. The lenders are currently working on a resolution plan but the majority of its bondholders declined last month to be a party to that plan.

#DHFL draft debt #resolution plan: Steering committee of Union Bk of India, SBI, BoB, BoI, Canara Bk, Central Bank & Syndicate Bk has been formed. Alvarez & Marsel appointed by #lenders to manage cash flows. Cash flows being routed via a trust & retention a/c maintained with #SBI pic.twitter.com/ZcNBqDHG3e

— CNBC-TV18 (@CNBCTV18Live) October 17, 2019

The proposed plan involves the conversion of debt into equity for lenders and also includes giving them a 51 percent stake in the company. On Thursday, the company had posted a net profit of Rs 431.71 crore in the corresponding July-September period of 2018-19. [caption id=“attachment_6023581” align=“alignleft” width=“380”]  Representational image. Reuters.[/caption] DHFL said the losses registered in Q2 of this fiscal were fully attributable to owners of the parent (company). The total income of the company fell to Rs 2,399.84 crore during the three months to September, as against Rs 3,154.25 crore in the year-ago period, it said in a regulatory filing. DHFL said the company is undergoing substantial financial stress since the second half of the previous financial year. The company has suffered consistent downgrades in its credit ratings since February 2019. “On 5th June 2019, the credit rating was reduced to default grade despite there being no default till that date. As a result, the company’s ability to raise funds has been substantially impaired and the business has been brought to a standstill with there being minimal/virtually no disbursements,” the company said. Further, the company has reached out to lenders for timely intervention and to restore the ability to carry on its business and they responded by agreeing to work on a plan under the RBI guidelines on resolution of distressed assets. “Ability of the company to continue as a going concern may be assessed in the backdrop of these developments,” it added. Based thereon, an indicative debt resolution plan has been submitted by the company which identifies liabilities of DHFL aggregating to Rs 48,826 crore, constituting 58 percent of the total debt of DHFL, as sustainable debt, it added. The company’s new auditor, KK Mankeshwar & Co, also raised concerns about the company’s future. “All these developments raise a significant doubt on the ability of the Company to continue as a going concern and therefore it may be unable to realise its assets and discharge its liabilities including potential liabilities in the normal course of business,” the auditor said. The auditors also said that they could not get sufficient evidence to support the value of certain loans and added that they were unable to comment if certain loans had been properly secured. “These loans may have been granted including terms and conditions, in a manner that is prejudicial to the interest of the company or its members,” the auditors added. Similar concerns had also been raised by Deloitte Haskin & Sells and Mumbai-based Chaturvedi & Shah, DHFL’s two previous auditors at the time of the declaration of the March quarter results. --With inputs from agencies