DHFL lenders set to begin voting on resolution plans; Piramal Group’s offer has the edge

After multiple rounds of bidding, and several revisions in bids by the suitors, the creditors' committee of Dewan Housing Finance Limited (DHFL) is set to begin voting on the final resolution plans, two people aware of the development told CNBC-TV18.

“We will begin the voting process tonight, and the voting window will remain open till January 14,” said a senior banking executive with a public sector bank with significant exposure to DHFL. This person added that all the resolution plans submitted so far by the four suitors - Oaktree Capital, Piramal Group, Adani Group and SC Lowy- will be put to vote.

“The bidder with the highest number of votes from the CoC (committee of creditors), subject of course to crossing the minimum threshold of 66 percent of votes, will be declared the winning bidder,” explained another person in the know.

Earlier, the CoC would vote on the highest plan under the insolvency and bankruptcy code (IBC). However, as per the revised voting rules under IBC proposed in February this year, all the resolution plans are voted on, and the highest one is declared the winner.

CNBC-TV18 earlier reported that Oaktree Capital and Piramal Group are seen neck and neck in the race to acquire DHFL, with Adani Group’s offer for the entire book a good Rs 5,000 crore lower than the highest bidders. SC Lowy did not bid for the entire book, and is the lowest by far and not seen as a contender by the lenders.

Last week, both Piramal Group and then Oaktree Capital raised their offers by Rs 1,700 crore to secure the lenders’ favour, CNBC-TV18 had reported. Both have shot off multiple letters to the lenders, administrator and RBI stating why their offer is better than the other suitors, with Oaktree even hinting at taking legal action against the CoC if its proposal is treated unfairly.

An Oaktree spokesperson, in a statement, said that the company has become increasingly concerned that certain pre-determinations have been made in relation to the bids being presented by it.

"Oaktree submitted the highest total bid for DHFL in each successive round of the bidding process with our final bid providing a total recovery of INR 38,400 crore for lenders which is INR 1,150 crore higher than the 2nd highest bid and a net present value of INR 36,418 crore for lenders which is INR 1,452 crore higher than the 2nd highest bid," stated the spokesperson.

"Lenders have compared the 2nd highest bidder’s proposal to infuse fresh equity capital into a co-mingled entity on an uncommitted basis with Oaktree’s proposal to infuse equity capital in a clean entity for the sole benefit of DHFL creditors on a committed basis," the spokesperson added in the statement.

A Piramal spokesperson termed claims made by Oaktree in its latest letter to CoC as "mistaken belief".

"The Oaktree bid is short on upfront cash, short on NPV, short on the overall score, un-implementable due to insurance-related complications, and leaves lenders with weak debt paper due to the sub-debt structure offered by Oaktree to themselves," said the Piramal spokesperson in a statement.

"This mail from the applicant appears to be under the mistaken belief that threatening COC members with consequences is going to alter these facts and change the course of a legally run, transparent process in our country," stated the spokesperson.

As for the final offers that will be considered by the CoC while voting on plans, Oaktree Capital’s proposal stands at Rs 38,400 crore for the entire book, compared to Rs 37,250 crore offered by Piramal Group. Adani Group’s offer for the entire book of DHFL stood at Rs 33,110 crore, as per people in the know.

Of the total Rs 38,400 crore offered by Oaktree Capital, Rs 11,700 crore is in the form of upfront cash, CNBC-TV18 reported earlier. Oaktree has also offered Rs 3,000 crore of cash to lenders from the interest earned on the existing cash on DHFL’s books, another Rs 1,000 crore for the insurance business, and Rs 1,700 additional cash for interest income after NCLT approval. This takes the total cash for the creditors at Rs 17,400 crore. The remaining Rs 21,000 crore is in the form of instruments payable over 7 years, as per people directly aware of the offer. Oaktree’s takeover of DHFL would also result in DHFL’s existing shareholders’ equity being wiped down to zero, which has been the case with almost all resolutions under the IBC.

Piramal Group’s total offer of Rs 37,250 crore includes a higher upfront cash payment of Rs 12,700 crore to the creditors, CNBC-TV18 reported earlier. Piramal Group has also offered Rs 3,000 crore of cash to lenders from the interest earned on the existing cash on DHFL’s books, another Rs 1,000 crore for the insurance stake, and Rs 1,000 additional cash for interest income after NCLT approval. This takes the total cash for the creditors at Rs 17,700 crore. The remaining Rs 19,550 crore is in the form of instruments payable over 10 years. Piramal Group’s takeover of the DHFL business would also entail writing off existing shareholders’ equity to zero, said people directly involved in the matter.

While Oaktree Capital’s offer is the highest overall, Piramal Group has offered more upfront cash and a relatively easier takeover of DHFL’s insurance business, CNBC-TV18 had reported. Both plans are being simultaneously voted on by the committee of creditors, and the voting results are expected by mid-January, only by when the winning bidder will finally be revealed.

DHFL is the first financial services company to be sent to NCLT under IBC and is facing claims of Rs 87,031 crore from financial creditors led by SBI, Union Bank of India and others.