The Adani Group created a surprise last week by announcing he would buy all the assets of heavily indebted Dewan Housing Finance Limited (DHFL), for just over Rs 31,000 crore. The Adani Group’s offer is now higher than other offers for the company, which is subject to a Corporate Insolvency Resolution (CIRP) process. It is also likely to force lenders to launch new offers for the business.
What is the case against DHFL?
On November 29 of last year, the Reserve Bank of India (RBI) filed for insolvency proceedings against DHFL, which was a non-bank financial corporation (NBFC). DHFL is the first NBFC to undergo an insolvency resolution, which was triggered after reports of mismanagement of funds at the company surfaced.
Most NBFCs have virtually no physical assets, and the CIRP is being launched under a new resolution framework put in place by the government. Since the RBI is the regulatory body for all banking institutions in India, it was also the claimant who contacted the Mumbai court of the National Company Law Tribunal (NCLT) for the initiation of proceedings for insolvency against DHFL.
Earlier in 2019, the company defaulted on the payment of interest on its trade papers and bonds worth Rs 900 crore. Although the company maintained that the cash shortage was a temporary problem, most rating agencies downgraded its commercial papers to “D”, indicating default status.
This was followed by reports that the company’s promoters, Kapil Wadhawan, then chairman and chief executive, and Dheeraj Wadhawan, then a non-executive director, transferred funds the company raised to shell companies, which then went on to redirected the money back to the Wadhawan accounts. Express Explained is now on Telegram
What are the offers for DHFL so far?
Until November 9, the deadline for submitting and reviewing bids for DHFL, Piramal Enterprises, Oaktree in the United States, Adani and SC Lowy, based in Hong Kong, had submitted bids.
In the first round of tendering, Piramal Enterprises offered 15,000 crore rupees for the retail branch of DHFL, while Oaktree had offered to pay 27,800 crore rupees for the entire business. SC Lowy had meanwhile offered Rs 2,300 crore for the company’s slum development authority loan book. After the corporate lenders have expressed their dissatisfaction on low bids, all companies significantly revised their bids.
The Adani Group, which has always been a successful bidder, had made an offer of Rs 2,700 crore just for the DHFL Wholesale and Slum Redevelopment Authority loan book. The company then revised its offer and said it would offer just over 31,000 crore rupees for the entire portfolio of the company.
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How does Adani Group’s offer change things for DHFL lenders?
With the DHFL group’s total liabilities estimated at over Rs 85,000 crore, NBFC lenders are likely to seek deals that maximize the funds they can recover. Since DHFL technically doesn’t have a lot of assets under its belt, lenders would be looking to recover instead of looking to maximize asset value, legal experts have said.
Adani Group’s unsolicited bid for the company’s entire portfolio will force lenders to launch new bids for DHFL. However, this is also likely to face a legal challenge from existing bidders like Piramal Enterprises and Oaktree.
Piramal Enterprises has already written to the lenders, opposing the resolution plan submitted by the Adani group. In its letter, the company said that proposing a resolution plan after the submission date, which was November 9, did not comply with either the provision of the revised September 16, 2016 Resolution Plan Request (RFRP), nor to the Insolvency and Bankruptcy Commission. of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, (CIRP Regulations).
Legal experts believe, however, that DHFL lenders would be free to launch a new round of tenders, giving all bidders time, including the Adani Group, Piramal Enterprises, Oaktree and SC Lowy, to revise their plans and offer more money than they already have.