DHFL-Oaktree deal may not fructify till lenders clear resolution plan

After months of negotiations between Dewan Housing Finance Corporation (DHFL) and US-based private equity (PE) firm Oaktree Capital — a specialist in buying out stressed assets —  the deal to acquire DHFL’s wholesale loan portfolio of over Rs 35,000 crore by Oaktree may not fructify, said a source close to the development.

“The PE firm is unlikely to budge on the deal until the resolution plan is finalised and implemented by the lenders,” says a person aware of the development. 

The lenders consortium, led by Union Bank of India, which is in the process of finalising a resolution plan, is hesitant to close in on the plan till it sees firm capital commitments from potential investors. 

Apart from Oaktree, DHFL is understood to be in talks with AION Capital and Cerberus Capital to acquire stake in its retail operations. “The non-binding agreement and their intent to acquire DHFL’s wholesale loans for about Rs 20,000 crore has been in the works for a very long time, and nothing is moving in the right direction,” said a highly placed source.  

“The resolution plan being deliberated upon concentrates on retail assets of DHFL. If there is a suitor for wholesale loans, the deal should not be held back or be dependent on implementing the resolution plan. In fact, the deal would give banks a better understanding of the potential haircut they may have to take on their exposure to DHFL, without which progressing on the resolution plan would be difficult,” the source said.

Terming it as a chicken-and-egg situation, a person aware of the developments said every lender involved with DHFL is now working on protecting their own interests. 

The alleged financial links with the underworld figure Iqbal Memon ‘Mirchi’ and the related money laundering investigations by the Enforcement Directorate, coupled with the negative findings in the forensic audit initiated by Union Bank of India and conducted by KPMG, is said to have further vitiated the resolution process to restructure the Rs 81,000-crore debt of DHFL. The exposure of banks is estimated at Rs 35,000 crore, while the rest comprises retail and wholesale non-convertible debentures and public deposits. 

In another development, it is understood that the lenders are not comfortable with DHFL or its promoters giving any assurance to other lenders such as mutual funds (MFs) who don’t form a part in the inter-creditor agreement (ICA) with respect to taking over their liabilities. It is believed that DHFL has reached out to certain MFs on taking over their exposure in the company to ensure the resolution plan goes through. MFs have about Rs 5,000 crore exposure to DHFL. 

“If DFHL or its promoters have that kind of money to buy out these exposures, they must plough it in the business. Such a practice could complicate the resolution,” said a lender. 

Lenders are in the process of converting 2.38 per cent of their outstanding loans to DHFL into equity and the conversion is expected to conclude at a face value of Rs 1 a share. 

“We will take a decision on this process in 10–14 days when we have a better understanding of DHFL’s involvement in the alleged money laundering investigation and its position, based on KPMG’s forensic audit report,” said a banker.