Dewan Housing Corp. Ltd (DHFL) shares jumped as much as 3.6% in early trade on Monday after CNBC TV18 reported that the lenders’ consortium comprising 31 banks has signed an inter-creditor agreement (ICA) for resolution of the liquidity crisis at the housing finance firm.
An inter-creditor agreement is a contract concluded between the debtor and all the creditors when the debtor is no longer able to pay its dues. This agreement pays for some part or percentage of the loan extended by each of the lender, and the debtor receives a final discharge for the remaining amount due. The debtor can make a new start and the creditors receive their payments immediately.
According to the report, Kotak Mahindra Bank and DCB Bank were yet to sign the ICA agreement and were expected to do so on Monday.
Notably, DHFL has outstanding loans of nearly Rs 50,000 crore to banks. Initial estimates done by banks, in consultation with US-based advisory firm Alvarez and Marsal, show that they will have to take a 35-40% ‘haircut’ on their loan exposure to DHFL.
SBI Caps is working on a draft resolution plan that will soon be presented to the DHFL’s lenders, sources told CNBC TV18. The resolution plan is likely to comprise three key parts: restructuring, debt conversion and capital support, added a source who is part of these deliberations.
A part of banks’ exposure towards DHFL’s wholesale book is seen as unsustainable, and therefore it may be converted into an equity or semi-equity instrument like cumulative redeemable preference shares (CRPS) with a long tenure and nominal coupon rate, according to a source.
Besides that, the retail portion of DHFL’s books is likely to be restructured with longer repayment schedule, added another source.
The third leg of the resolution plan would be providing funding support to DHFL. Banks may have to support the housing finance firm with additional capital support to the tune of Rs 2,000 crore, a banking executive with one of the large banks in the consortium told CNBC-TV18.
The DHFL crisis came to the forefront when, on 4 June, DHFL delayed interest and principal payments to the tune of Rs 1,160 crore to bond holders. The company asked for a seven-day grace period. Consequently, CRISIL, ICRA and CARE Ratings downgraded their rating on DHFL’s commercial paper/non-convertible debentures to “D”, based on delay in debt servicing due to inadequate liquidity, modest capital position and modest earnings. DHFL later, however, managed to make partial payments to NCD investors.
At 10:20 am, DHFL shares were trading at Rs 81.35, up 1.4%, on BSE.
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