Union Bank says lenders may be forced to convert half of their DHFL debt into equity, will be for short-term

  • DHFL has become the poster-boy of the NBFC crisis that afflicted the financial sector after the infra-lender IL&FS went belly up last September

  • DHFL owes over Rs 45,000 crore to banks, and the rest to other financiers including mutual funds, pension funds, and insurers

  • DHFL shares fell over 5 percent on Tuesday after the company said it has defaulted on financial repayment obligations of Rs 1,571 crore

Resolving the crippled mortgage lender DHFL's over Rs 90,000 crore debt is "not so easy" and banks are considering converting their outstanding into equity, Union Bank of India said on Tuesday.

Rajkiran Rai, the managing director and chief executive for the state-run UBI, which is the lead-lender to the crippled housing financier, Tuesday clarified that if the banks take an equity stake in the company, it will be for a short-term, which is till they get a suitor, a PTI report said.

DHFL owes over Rs 45,000 crore to banks, and the rest to other financiers including mutual funds, pension funds, and insurers, which are not regulated by RBI. "It's not a normal resolution process. It's a financial company. Here the creditors are banks, insurance companies, pension funds, and mutual funds. It is not so easy. In a normal resolution, its banks and NBFCs, so this is new to us also," Rai told reporters on the sidelines of the annual banking industry event Fibac.

DHFL has become the poster-boy of the NBFC crisis that afflicted the financial sector after the infra-lender IL&FS went belly up last September.

Rai said converting debt into equity is "one of the ideas" on the table as lenders seek to wriggle out a solution. "Even if banks acquire equity, it will be for a very short-term. But it will become a long-term pain if banks fail to get a good investor and we are not ruling that eventuality as well," Rai said.

 Union Bank says lenders may be forced to convert half of their DHFL debt into equity, will be for short-term

Representational image. Reuters.

However, he did not offer specific comments on questions surrounding how other lenders to DHFL like the debenture trustees and pension funds will be a part of the inter-creditor agreement, which is essential before any resolution begins under the new RBI norms. "So many regulators are involved in this. There is RBI, then there is Irdai and also Sebi It is not so easy. But for us banks, thankfully it's easy as our regulator allows it," Rai said.

It can be noted that earlier this month, governor Shaktikanta Das had said on 7 August that the RBI was in touch with capital markets regulator Sebi, and insurance watchdog Irdai to allow MFs and insurers to become a part of the ICA.

Meanwhile, Arijit Basu, a managing director at SBI, which also has exposure to DHFL, said lenders are "evaluating" resolution plan received from DHFL. "We are bankers who have lent, there are others who have also lent like MF, insurers, pension funds. All have to be brought on the same page if we have to have a resolution. Both the banks and the regulators are looking at this issue
very closely," Basu said.D

When asked specifically if everybody is on board with the plan being discussed, Basu initially said everyone is working "jointly to find a solution". "...all the regulators have to come on board and give their approval. That is moving forward in a very coordinated and systematic manner," Basu said.

DHFL shares tank

Meanwhile, shares of DHFL on Tuesday fell over 5 percent after the company said it has defaulted on financial repayment obligations of Rs 1,571 crore with regard to the issuance of bonds and commercial papers.

Its shares tanked 5.20 percent to close at Rs 46.50 on the BSE. Intra-day, the stock tumbled 7.84 percent to Rs 45.20.

On the National Stock Exchange (NSE), the scrip dropped 5.19 percent to close at Rs 46.50.

In terms of traded volume, 23.85 lakh shares were traded on the BSE and over two crore on the NSE.

The defaults pertain to three cases with regard to interest payment on non-convertible debentures and commercial papers (CPs), Dewan Housing Finance Corporation Ltd (DHFL) said in a regulatory filing on Monday.

In a break-up, the non-banking financial company (NBFC) said it has defaulted on Rs 46.92 crore towards interest amount on secured NCDs (9.92 percent and 9.40 percent/10 year tenor); on non-convertible debentures (NCDs) issued through a public issue for multiple tenors of amount involving interest of Rs 363.77 crore and a principal amount of Rs 1,059.91 crore.

Besides, defaults of Rs 100 crore occurred on CPs.

The NBFC has not been able to fulfil its obligations towards debt repayment in the recent past and there have been several cases of defaults on commercial papers and bonds.

--With PTI inputs

Updated Date: Aug 21, 2019 07:53:14 IST