Indianomics: Experts decode DHFL resolution process

Piramal Group on Wednesday announced the completion of the Dewan Housing Finance Corporation (DHFL) takeover and has discharged the consideration to the creditors.

The Piramal-DHFL deal was done with many firsts. Under the Insolvency and Bankruptcy Code (IBC), it was the first finance company to be resolved. Also, the second-largest deal to be done under the IBC at Rs 38,000 crore.

For the first time, the effective resolution professional was the administrator appointed by the Reserve Bank of India (RBI). In many ways, the resolution of DHFL is a feather in the cap of the RBI as well as the administrator, bankers and the professionals involved.

In an interview with CNBC-TV18's Latha Venkatesh, R Subramaniakumar, DHFL administrator said, "The problem with DHFL was well-identified much before I walked in and the moment I walked in, I was able to draw the clear picture of what exactly is happening in the company within 15-20 days. Thereafter, the biggest challenge was to make people look at one direction of resolution and thanks to the team and with series of townhalls we were able to bring all of them onboard."

"However, the pandemic lockdown came as a shocker and the challenge was that people could not move out but we had to run the company. So we facilitated technology enablement and made almost 85 percent of the staff members start operating from home. Later, we were able to speak with the investors, we were able to speak amongst ourselves as well as to the company people," Subramaniakumar said.

Abizer Diwanji of EY India said, "The biggest challenge we had was that our lending was a bit constrained. We had a lot of issues in terms of trying to reach out to people within the pandemic. Also, the fact that we had litigation where the FD holders had said that you cannot lend further and there was litigation around it. The biggest issue was value preservation. The way value preservation happened is actually converting the asset into cash and retaining the franchise."

"The collections platform that we build and the enterprise value that got maintained by converting loans into cash was the biggest way in running the process. The other thing was to pursue investors who we thought were actually bidders. We received a record number of EoIs and the only reason the EoI did not convert to bids was the pandemic and the uncertainty around it. However, going to investors and running a proper investment banking process, making presentations to prospective investors and involving them to say what is the enterprise value that DHFL can deliver to them was big learning," Diwanji said.

Jairam Sridharan, CEO at Piramal Retail Finance said, "Asset quality is what determines the value of the underlying franchise. So the key thing that you need to get comfortable with is that the asset quality is good. In this particular case, one side of the portfolio, the wholesale side of the portfolio was very problematic. But what really helped was the report that was done to find out all the underlying fraud and that report gave us a very good sense. The administrator and his team did a very good job of separating out the fraud from the non-fraud and reclassifying assets between wholesale and retail and potentially fraudulent assets. That made it very clear to understand what is a truly good asset and what is not, and that made things a lot easier. Then of course as a buyer, you have to do your due diligence."

Rajkiran Rai G, managing director and chief executive officer of Union Bank of India said, "RBI appointed administrator is a good model to be copied. With this experience, we should definitely look at it as an option."