DHFL race: Piramal Group may emerge as dark horse despite higher overall offer from Oaktree

The race to acquire Dewan Housing Finance (DHFL) has effectively narrowed down to two players -- Oaktree Capital and Piramal Group -- given Adani Group's shockingly modest revision in the last round of bids submitted on Monday.

On first reading, Oaktree Capital's offer for the entire portfolio seems the highest at Rs 36,646 crore. This around Rs 1,096 crores more than the second highest offer from Piramal Group at Rs 35,550 crore. The lowest of the three bids for the entire book is from Adani Group, with an offer of Rs 33,110 crore, CNBC-TV18 earlier reported. So is Oaktree the winning bidder for DHFL? It may be too early and simplistic to make that conclusion.

Even with a lower offer than rival Oaktree, Piramal Group has an edge for a few reasons and may emerge as the dark horse in this race, CNBC-TV18 has learnt.

By offering a higher cash payment upfront vis-a-vis Oaktree and Adani Group, Piramal may find favour with the creditors committee. According to several people in the know, Piramal Group has offered Rs 12,700 crore as upfront cash payment, compared to Rs 11,646 crore offered by Oaktree Capital. This gives Piramal Group a significant advantage.

Both have offered a substantial portion of repayment in the form of non-convertible debentures (NCDs), with a 7-10 year repayment window, people with knowledge on the matter said. Oaktree has offered Rs 21,000 crore in the form of NCDs to be paid over 7 years, compared to Piramal's offer of Rs 19,550 crore NCDs to be paid over 10 years.

The bidders' proposals with regards to DHFL's insurance business -- Pramerica Life Insurance Limited (PLIL) -- may also give Piramal an edge, a senior person involved in the deliberations told CNBC-TV18.

Piramal Group is understood to have offered Rs 300 crore to buy out DHFL's stake in the insurance business. Oaktree Capital, on the other hand, has included Rs 1,000 crore of gain from the sale of the insurance business stake, but with conditions, said one of the people quoted earlier.

Oaktree's offer states that lenders would have to run the process to sell the insurance stake by March 31, 2021 and keep gains. If the deadline is not met, Oaktree has offered alternate solutions and may have to consider an AIF structure to acquire the businesses due to 49 percent FPI in insurance restrictions, added the person. If this outcome does not materialise, Oaktree has included a clause to say they may renegotiate the bid, a person directly involved in the matter said.

Oaktree has proposed to hold back Rs 1,500 crore from the total offer to financial creditors to meet any contingencies arising out of their investment in DHFL's insurance business, which may further weaken their proposition. Piramal Group has also proposed Rs 300 crore as the holdback amount for a period of six months, effective only in the event that the committee of creditors does not accept Piramal's offer to buy stake in DHFL's insurance business.

Meanwhile, Piramal has offered an additional sum for the Fixed Deposit (FD) holders of DHFL. Piramal is understood to have communicated to the committee of creditors that it will top up whatever amount the lenders decided to give to FD holders by an additional 10 percent. This amount would be over and above the total offer of Rs 35,550 crore, said one of the sources quoted above.

Hence, given the conditions attached with Oaktree Capital's offer compared to that of Piramal – clubbed with the higher upfront offer, a less complicated insurance business takeover, and an allocated amount for FD holders -- may give it an advantage over the rest, explained an executive directly involved in the deal.

Ultimately, lenders would take a final call. The CoC is expected to meet on December 18 to seek more clarifications from all suitors and compare all bids using the evaluation matrix, which will be presented by SBI Caps, CNBC-TV18 has learnt. The voting on all offers is then expected to start around December 23.

CNBC-TV18 has reached out to all bidders for a response. Their comments are awaited.

Oaktree Capital bid for entire book: Rs 36,646 cr

Upfront cash payment: Rs 11,646 cr

Cash for insurance biz: Rs 1,000 cr

NCDs: Rs 21,000 cr over 7 years

Interest on cash on books: Rs 3,000 cr

Piramal Group bid for entire book: Rs 35,550 cr

Upfront cash payment: Rs 12,700 cr

Cash for insurance biz: Rs 300 cr

NCDs: Rs 19,550 cr over 10 years

Interest on cash on books: Rs 3,000 cr

Adani Group bid for entire book: Rs 33,110 cr

Upfront cash payment: Rs 10,750 cr

Cash for insurance biz: Rs 250 cr

NCDs: Rs 19,110 cr over 7 years

Interest on cash on books: Rs 3,000 cr

Note: This copy has been updated to incorporate latest developments.