The lenders to Dewan Housing Finance Corporation (DHFL) on Friday voted overwhelmingly in favour of the resolution plan submitted by the Piramal group, paving the way for a turnaround of the bankrupt firm.
While Piramal’s offer received 94 per cent votes, US-based Oaktree Capital’s plan got just 45 per cent votes from the committee of creditors (CoC).
A banker said Oaktree’s offer was “too complicated” and there were too many loopholes in its plans, including misleading information on the ratings of future bonds to be issued to the lenders.
Piramal, on the other hand, plans to merge its financial services business with DHFL and retain all its employees. It succeeded easily in getting more than the requisite 66 per cent votes with all the public sector banks in the CoC voting in its favour, the banker said.
DHFL was sent to the bankruptcy court in December 2019 after the company defaulted on its bank loans worth Rs 90,000 crore. The promoters of the company are currently in jail and are facing money-laundering charges.
Piramal's plan will lead to a recovery of Rs 37,250 crore over the next five years for the DHFL lenders. Of its total payout, Piramal will give Rs 12,700 crore as upfront cash to the lenders. The higher upfront cash tilted the scale in Piramal's favour. According to the plan, the existing shareholders of DHFL will get zero value. The offer of the third bidder, Adani, was too low.
Oaktree, which had offered an additional Rs 1,700 crore after the bidding deadline, did not find favour with the lenders.
The CoC will submit Piramal’s plan for the approval of the National Company Law Tribunal (NCLT). Piramal Capital and Housing Finance’s merger with DHFL will be effective from the date the NCLT approves the plan, thus adding 4,500 employees to the group and investing Rs 10,000 crore of Piramal Capital’s equity in the merged entity.
For Piramal, the merger with DHFL makes sense as it would give it a stable cash flow from retail customers at a time when its own corporate loan portfolio is facing tough times due to the real estate sector slowdown.
The lenders are now waiting for Oaktree’s next move, considering that it had warned that it would take legal action if its offer was not approved. In a letter to the lenders just before the voting, Oaktree had said its offer was being undervalued by Rs 2,700 crore by the CoC and its advisors, giving an upper hand to the Piramal group. This includes Rs 1,000 crore set aside by Oaktree from the future sale of DHFL’s life insurance venture for the lenders and Rs 1,700 crore of additional interest income, which was offered by the US firm to the lenders two days after the deadline to submit bids ended on December 22.
Oaktree also said the fair market value of its financial proposal was higher that Piramal’s by Rs 4,503 crore.
But Piramal had raised objections to Oaktree’s plan, saying it would not be able to meet the capital adequacy norms prescribed by the National Housing Board and the Reserve Bank of India, Ajay Piramal, chairman of the Piramal group, wrote in a letter to the central bank.