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Piramal-DHFL Bid: Why is the Resolution Important and What it Means for Creditors

Ajay Piramal-led Piramal Capital & Housing Finance Limited (PCHFL) has emerged as the winning bidder for Dewan Housing Finance Limited (DHFL), after almost 94 per cent of the creditors voted in its favour.

Oaktree Capital’s resolution plan secured only 45 per cent of votes from the creditors committee, reports said.

Why was the resolution important and what led to DHFL’s collapse?

The bidding war for DHFL has been going on for a while with Piramal Group and Oaktree Capital leading the race in the final round. Piramal Enterprises, a diversified Indian conglomerate, and American asset management company Oaktree have both made bids in the range of Rs 37,000-38,000 crore. The cash components are also almost identical, at about Rs 17,000 crore each.

Besides the financial aspects, creditors also evaluated the non-financial part of the bids such as regulatory compliance, company track records and future action plan etc, according to officials who are in the know.

DHFL collapsed under the weight of a severe liquidity crunch after the collapse of Infrastructure Leasing & Financial Services (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 National Company Law Tribunal (NCLT) in December 2019. Since then, the creditors to the company have been attempting for a resolution.

How much does DHFL owe to its creditors?

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.

Who were the other bidders?

Till November 9, which was the last date for submission and revision of offers for DHFL, Piramal Enterprises, Oaktree, Adani, and Hong Kong-based SC Lowy had submitted bids.

In the first round of bidding, Piramal Enterprises offered Rs 15,000 crore for the retail arm of DHFL while Oaktree had offered to pay Rs 27,800 crore for the entire company. SC Lowy had, meanwhile, offered Rs 2,300 crore for non-slum redevelopment authority loan book of the company. After the lenders to the company expressed unhappiness over the low bids, all the companies revised their bids significantly.

What does the resolution mean for fixed deposit holders?

According to reports, fixed deposit holders of DHFL could get back about a quarter of their investments under the proposed resolution plans.

Over 55,000 FD holders of the ailing housing finance company have been left in the lurch with nearly Rs 53,75 crore of claims. Of this, about Rs 2,200 crore is of retail FD holders, who point out that a large part of their life savings are now stuck.

Under the Insolvency and Bankruptcy Code (IBC), secured creditors have to be paid first before other unsecured creditors.

Source: News18