DHFL’s creditors may seek higher bid from Oaktree, committee to decide on Monday

(This story originally appeared in on Oct 23, 2020)

Mumbai: US-based Oaktree is the front-runner with a bid of Rs 28,000 crore for housing finance company DHFL, while Piramal Group has offered a much lower price and is largely interested in retail loans. The committee of creditors to DHFL will meet on October 26 to decide on the bids.

In terms of Oaktree’s bid, the private equity firm will pay Rs 12,000-crore cash up front and an additional Rs 16,000 crore in bonds bearing a 6.5% interest rate. According to sources, lenders are likely to ask Oaktree to improve the offer given that the bid amount is almost Rs 10,000 crore lower than their expectations.

Adani Group has also submitted a bid, but it was limited only to real estate projects. Hong Kong-based SC Lowy is the fourth bidder.

According to a banking source, Oaktree’s bid amounts to a mere 30% of the company’s dues. But lenders point out that the discount is less steep, keeping in mind that a forensic audit has not been able to trace the whereabouts of Rs 20,000 crore of loans. Additionally, a report by Grant Thornton had said that the company used software to create 2.6 lakh fictitious home loan accounts, which resulted in the administrator filing a case against the promoters for fraud of Rs 12,000 crore.

A banker said that the lenders were expecting to recover at least 40% of their exposure, based on the worst-case scenario that half the book turns out to be bad. Besides having a retail portfolio of Rs 25,000 crore, the administrator R Subramaniakumar, former CEO and MD of Indian Overseas Bank, had succeeded in a cash recovery of Rs 9,000 crore, which is currently on the books of the bank.

The retail home loan books are considered to be the most sound, despite the pandemic as in India the minimum loan-to-value ratio ensures that the security is intact even if home prices were to fall marginally.

Source link