Piramal group plans to merge its financial services business with DHFL

The Piramal group is planning to merge its financial services business with DHFL and has sweetened its Rs 35,550-crore offer for fixed depositors by setting aside an additional Rs 300 crore for them.

Piramal’s equity in the financial services is worth Rs 10,000 crore.

The plan depends on DHFL’s committee of creditors (CoC) accepting the offer over its rival Oaktree’s.

The Piramal group is also planning to retain all the 4,500 employees of the bankrupt housing finance firm.

According to a source close to the development, Piramal’s offer is Rs 2,500 crore more than that of Oaktree. The US-based firm has held back Rs 1,500 crore from its 36,656-crore offer for the company.

“Apart from giving the lenders Rs 1,000 crore more as upfront money, Piramal has not held back any money from the lenders. This has led to a major difference between the two offers,” said a banker.

The Oaktree offer includes Rs 11,646 crore in upfront cash and deferred payments to the lenders while Piramal has put on the table Rs 13,000 crore upfront.

When contacted, Oaktree declined to comment. Nor did a Piramal spokesperson.

Oaktree has asked the banks to keep Rs 1,500 crore in an escrow account till the tax liabilities from the sale of DHFL’s insurance venture are met.

Oaktree cannot hold a stake in the insurance arm because if it did so, it would breach India’s ceiling for foreign direct investment in the insurance sector. Pramerica holds a majority stake in the insurance company.

The CoC of DHFL will meet on December 18 to study the proposals submitted by the players. It will discuss how to split the proceeds among the claimants. Voting on the proposals will be held a week later.

The lenders, fixed depositors, and provident funds had made a claim of Rs 90,000 crore after the company was sent to National Company Law Tribunal for debt resolution in December last year.

Both Oaktree and Piramal have offered to issue bonds to the banks.

As Piramal is Triple A rated, its bonds (to be issued to the banks as deferred payment) will fetch a premium as compared to Oaktree, whose bonds will be rated lower.

A source said Piramal’s offer has received three points more than Oaktree’s when compared on quantitative metrics.

“As Piramal is an Indian company with ongoing relations with the lenders, the banks will be more comfortable working with it. Besides, Piramal has offered an additional Rs 300 crore outside its resolution plan for the fixed depositors, which would tilt their vote in Piramal’s favour,” the source said.

DHFL has cash of Rs 12,000 crore on its books and all the upfront cash offers are made on the basis of that.

The Piramal group has decided to make the offer with insurance stake sale proceeds worth Rs 200 crore going to the lenders.

Both Piramal and Oaktree offers include the Rs 3,000 crore of interest earned on the cash on the books of DHFL.

Excluding that, while the Piramal offer for the entire company is Rs 32,350 crore, the Oaktree offer is for Rs 32,646 crore.

“The holdback by Oaktree may turn out to be the deal breaker,” said the source.