October 30, 2019

DHFL Lenders Wary Of Investigation Scuttling Proposed Debt Recast Plan As MCA Gets Ready To Unleash The SFIO

[ By Bobby Anthony ]

Dewan Housing Finance Corporation Ltd’s (DHFL) lenders are wary of a Special Fraud Investigation Office (SFIO) potentially scuttling a proposed debt recast plan which is in the process of being finalized as per a Reserve Bank Of India (RBI) circular issued on June 7.

Under the proposed debt recast plan, lenders would take a 51% stake in DHFL by converting a portion of its debt into equity.

However, DHFL’s lenders are in a fix about recovering their exposure of Rs 38,342 crore of loans to the company due to an impending SFIO probe because once the SFIO takes up the case, the proposed debt recast plan will take a back seat because it would be impossible for both processes to run simultaneously.

It would mean that lenders would have to wait for the SFIO probe to be over before the initiation of any resolution plan. A resolution plan or restructuring deal too would become possible only if the SFIO probe finds that there was no malafide intention on part of DHFL’s promoters.

Meanwhile, the Ministry of Corporate Affairs (MCA) plans to order the SFIO to probe into alleged financial irregularities at DHFL after the Registrar of Companies' (RoC) regional office in Mumbai recommended action by the SFIO against DHFL in its report submitted to the MCA.

The MCA is currently studying the report and will very soon refer it to the SFIO for further action.

It may be recalled that in August, the DHFL board had approved a proposal to convert its debt into equity, which will give banks control of the mortgage lender that has been struggling to meet its payment obligations.

DHFL, which is the country's third largest mortgage lender, had sought a Rs 15,000-crore fund support from creditors to start giving loans to viable projects while their lenders finalise the resolution plan. The plan was to include picking up 51% equity in the company by converting their debt into equity.

Audit firm KPMG, which has carried out a forensic audit of DHFL, has submitted a draft report to its lenders. Initiated by DHFL’s lenders, the findings of the forensic audit were supposed to affect a proposed debt-restructuring plan aimed at reviving DHFL.

It was also supposed to prompt DHFL’s lenders to push for a management change in the Wadhawan family-run company.

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