Last week, the Adani Group took us all on a roller coaster ride as it sprang a surprise by announcing that it is interest to purchase all the assets of Dewan Housing Finance Limited (DHFL), the debt-laden finance firm. DHFL was a non-banking financial company, (commonly abbreviated as NBFC). The transaction will be amounted to a little over Rs 31,000 crore with the Adani Group’s bid being highest higher than all other offers that have been received for the purchase of DHFL under its undergoing corporate insolvency resolution process or CIRP. This step will also force the lenders to call for new and higher bids for the company.
What is the case against DHFL?
It was November 29, 2019, when the Reserve Bank of India, triggered after reports of funds mismanagement at the company surfaced, filed an application to initiate the insolvency procedures against Dewan Housing Finance Limited. DHFL has set records by being the first NBFC to undergo insolvency resolution.
NBFCs do not generally go under insolvency measures is because most of them do not have any physical assets. The CIRP is now initiated under a new resolution framework put on the table by the government. The RBI, being the regulator for all banking institutions in India, took the responsibility of being a petitioner as well and had approached the Mumbai bench of the National Company Law Tribunal (NCLT) to lay the foundation stone for initiation of insolvency against DHFL.
In 2019, the company had not made payments of interest on its bonds and commercial papers worth Rs 900 crore while it maintained that the cash crunch was a temporary problem. Due to the cash crunch issues, most rating agencies downgraded its commercial papers’ rating to as low as a ‘D’, indicating the default status.
The cherry on the top of this mess was the reports that the promoters of the company, Dheeraj Wadhawan, then a non-executive director, and Kapil Wadhawan, the then chairman and managing director, had transferred funds collected by the company into shell companies. The shell companies then re-routed the monies back into the accounts of the Wadhawans.
What are the bids for DHFL so far?
Until November 9, the last date for submission and revision of offers for DHFL, the US-based Oaktree, Adani, Piramal Enterprises, and Hong Kong-based SC Lowy had submitted bids.
Oaktree had offered to pay Rs 27,800 crore for the entire company while Piramal Enterprises offered Rs 15,000 crore just for the retail arm of DHFL, all in the first round of bidding. Meanwhile, SC Lowy offered a sum of Rs 2,300 crore for the non-slum redevelopment authority loan book of the company.
However, the lenders to the company were not quite satisfied with the offered bids and once they expressed their unhappiness over the low bids, all the companies revised their bids significantly.
What were the revised bids?
Being always a bidder in contention, The Adani Group, made an offer of Rs 2,700 crore only for the wholesale and slum redevelopment authority loan book of the NBFC which is again revised, and said it would offer a little over Rs 31,000 crore to purchase the entire portfolio of DHFL.
How will the new bid by the Adani Group change things for DHFL’s lenders?
The total liabilities of the DHFL group are estimated at a level as high as Rs 85,000 crore and the lenders are likely to seek bids that maximize the recoverable funds. Also, owing to the fact that DHFL does not technically have many assets to its name, the legal experts say that the lenders to the company would look forward to recovering funds instead of looking for maximization of the value of the assets.
The unsolicited offer by the Adani Group to take over the entire book of the company will pressurize the lenders to call for new bids while there are probabilities of this facing a legal challenge from existing bidders like Oaktree and Piramal Enterprises.
Written letters had already been sent by the Piramal Enterprises to the lenders stating clear objections to the resolution plan submitted by the Adani Group by mentioning that offering a resolution plan after November 9, which was the submission date, was in accordance with neither the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, (CIRP Regulations) nor the provision of the revised request for resolution plan dated 16 September 2016 (RFRP).
However, legal experts are of the point of view that the DHFL lenders would have the comfort and will be at liberty to call for a fresh round of bidding. This new round of bid invitations would give time to all the bidders to revise their plans and offer more money than they already have offered in the previous rounds. These bidders include the Adani Group, Piramal Enterprises, Oaktree, and SC Lowy.