Banks voted for the Piramal offer for DHFL. On Friday, the lenders to Dewan Housing Finance Corporation (DHFL) voted unanimously in support of the resolution plan. Company Piramal present the plan, opening the way for the bankrupt firm to revive.
Although the bid from Piramal received 94 percent votes, the US-based Oaktree Capital plan received just 45 percent votes from the creditor’s committee (CoC).
A banker said that the offer from Oaktree was “too complex” and his proposals had too many loopholes. It includes giving false details to the lenders on the ratings of potential bonds.
But on the other hand, Piramal plans to combine its business in financial services with DHFL and keep all its employees. With all the public sector banks in the CoC voting in its favor, it easily succeeded in getting more than the required 66 percent votes, the banker said.
In December 2019, after the firm relied on its bank loans worth Rs 90,000 crore, DHFL went to bankruptcy court. The company’s founders are currently in prison and face accusations of money-laundering.
More About the Banks And DHFL:
Banks have a different story here. Piramal’s strategy for the DHFL lenders will contribute to a recovery of Rs 37,250 crore within the next five years. Of its total payout, Piramal will provide the lenders with Rs 12,700 crore as cash upfront. In terms of Piramal, the higher the upfront cash tilted the scale. The current stakeholders of DHFL would get zero value, as per the plan. The third bidder’s offer, Adani, was too weak.
Oaktree, which after the bidding deadline had provided an additional Rs 1,700 crore, can’t find favor with the lenders.
The CoC will apply a proposal for Piramal to the National Company Law Tribunal for approval (NCLT). The merger of Piramal Capital and Housing Finance with DHFL will be effective from the date the proposal is approved by the NCLT, thus adding 4,500 workers to the company and investing Rs 10,000 crore of the equity of Piramal Capital in the merged entity.
The merger with DHFL makes perfect sense for Piramal as it will provide it with a steady cash flow from retail customers at the same time when its own corporate loan portfolio faces hard moments due to the downturn of the property sector.
The lenders of banks are now waiting for the next move by Oaktree. It also had threatened that if its offer was not accepted, it would pursue legal action. Oaktree had said his bid was undervalued by Rs 2,700 crore by the CoC and its advisors in a letter to the creditors. This was just a little before the vote, giving the Piramal party an advantage.