DHFL lenders may have to take up to 30% haircut

Mumbai: Lenders to bankrupt mortgage firm Dewan Housing Finance Limited (DHFLNSE 3.71 %) may have to take up to 30 per cent haircut on their loans even as the company had in its resolution plan promised a full payout of its debt over 10-20 years.

“We don’t have complete liability tenor and coupon profile,but aggregate haircut will be between 28-37 per cent for discounting rate between 9-12 per cent,” said Jefferies, a brokerage, in a report.

The loan amounts to about Rs 84,000 crore. A haircut on loan is a partial loss incurred by a creditor on the advances or deposits. However, the exposure of most banks to the embattled company may not impact the earnings due to early provisions taken by lenders on their books.

“Banks and mutual funds have taken 30-50 per cent MTM hit on bonds, so incremental provisioning needs should be small, but NPL provisions will come later,” Jefferies said. As per DHFL’s repayment plan, cash proceeds from loan assets would be used to repay creditors. The first category of debt worth over Rs 34,800 crore will be repaid through inflows from the company’s retail loans, where the projected cash inflow stands at over Rs 52,600 crore by financial year 2034-35. However, a higher rate of discount on these cash flows could substantially impact the NBFC’s ability to honour its 100 per cent repayment commitment, says the analyst.

“Discounting the assigned cash flows at 10 per cent (or a range of 9-12 per cent) suggests implied haircut at 31 per cent on average, (or in a range between 28-37 per cent) for the lenders,” the report said. “A delay in cash inflows or a lower-than-expected recovery could further increase the haircut for lenders.”

Further, the brokerage said that while retail and project loans, which make up for about 63 per cent of the overall debt, could see lower haircuts in the range of 10 per cent or less, its slum rehabilitation projects and inter-corporate deposits may see haircuts of 60 per cent and above. Public deposits depending on the cashflows and discounts may also have to incur haircuts of the tune of 5 per cent.

The NBFC had earlier appointed Vaijinath MG, a former chief general manager of State Bank of India, as its CEO and floated a draft debt resolution plan according to which it has assumed a price of Rs 54 per share for conversion of debt into equity by lenders that would give them 51 per cent, the company said in its resolution plan submitted to the exchanges on September 28.

The plan is subject to approval by lenders and investors.

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