DFHL NCD Defaults: High Court Issues Notice to SEBI, the Company & Trustee
The Punjab & Haryana High Court has issued notices to market regulator Securities and Exchange Board of India (SEBI), and Dewan Housing Finance Corp Ltd (DHFL) and Catalyst Trusteeship Ltd among others for the company and trustee's failure to safeguard interests of debenture holders. 
 
The petition, filed by Jyoti Khemka through Advocate Shreenath A Khemka, had requested the Court to direct SEBI to take regulatory action against the market intermediaries by conducting an investigation involved in the DHFL non-convertible debenture (NCD) issue.
 
Catalyst Trusteeship was the trustee for the debentures issued by DHFL in 2016. At that time, ratings agencies CARE and Brickworks had given their highest 'AAA' rating to the DHFL debentures that had a tenure of three year. However, upon maturity on 16 August 2019, DHFL defaulted in the payment. 
 
The petition says, "Catalyst failed to safeguard the interests of the Complaint, by completely failing to ensure realization of the Debenture amount that became due on 16.08.2019. The said debentures were 'secured', and the debenture trustee was supposed to hold adequate Security to secure the debenture amounts. Yet, Catalyst failed to secure and realize the amounts that became due."
 
While the credit rating agencies had given AAA rating to the DHFL debentures, during February to May 2019, it was downgraded to 'D' (default) when it had become apparent that DHFL being insolvent will default in its financial obligations. The consistent down-grading demonstrated that financial health of DHFL did not suddenly deteriorate due to external shock, Ms Khemka says in her petition.
 
The petition says, "It is impossible for the credit rating of a housing finance company in the business of mortgage finance to fall so sharply overnight, especially for housing finance companies in the business of mortgage finance. Non-performing assets (NPAs) of a housing finance company is usually very low at about 1%-1.5%. Further, there are ongoing investigations by into the conflict of interest issues surrounding the credit rating agencies in the case of IL&FS and its subsidiaries, therefore vitiating the proposition of having acted in bona fide fiduciary capacity."
 
According to a whistle-blower, Catalyst Trustee has a legal duty to act on behalf of NCD and bondholders and it is legally bound to file a case against DHFL for liquidation in Debt Recovery Tribunal (DRT).
 
"The rule says if DHFL defaults, the trustee should immediately file the case. Till date DHFL has defaulted on more than 100 instances for retail NCD on interest and principal payments. Yet, Catalyst Trustee has not yet filed any case, and still says that filing of a case is 'under process'. This 'in process' status by the trustee is there for more than one or two months. Is the delay in case filling by Catalyst Trustee because of some undue favour by DHFL promoters to promoters of Catalyst Trusteeship," the whistleblower alleged.
 
In February 2019, ratings agency ICRA Ltd downgraded the Rs8,000 crore commercial paper (CP) issued by DHFL to A2+ from A1+ due to challenges faced by the lender in raising funds from traditional bank lines of credit and instruments.  
 
"The risk is further heightened by the moderate economic capitalisation levels, concentration risks arising out of 17% exposure (as a proportion of assets under management- AUM as on 31 December 2018) to the construction finance segment, a large part of which remains under construction/moratorium, and the reduced ability of DHFL to support fresh business," ICRA, a unit of Moody's, says.
 
DHFL, however, expressed concern over ICRA's re-rating of the company's CPs citing it is not merit-based and is unwarranted. (Read: DHFL Cries Foul as ICRA Downgrades Its Rating on Rs8,000 Crore Commercial Paper of the HFC)
 
Earlier in September, a whistleblower had alleged that the resolution plan (RP) as proposed by financially stressed DHFL will allow the company promoters to continue with the previous lending malpractices for another 10-15 years as there are no substantial cash outflows for the next 10 years. 
 
The RP has also left several depositors and non-convertible debenture (NCD) holders high and dry as the return on investment (RoI) is shown as nil. Even other lenders like banks, NCD holders, including mutual funds, insurance companies, and pension funds, ECB and NHB will have to buy 2.3% stake each at Rs54 per share in the debt-ridden company.
 
As per the RP, balance deposits after 31 October 2019 are proposed to be restructured over 10 years with nil interest rates. Even deposits payable till October 2019 end are assumed to be paid with existing interest rate. (Read: DHFL Resolution Plan Will Allow Promoters Continue Previous Malpractices, Alleges Whistleblower
 
Separately, the Bombay High Court on Tuesday extended its previous stay on further payments by DHFL to its creditors except for payments made parri passu (in equal proportion) to all secured creditors. According to a report by Mint, the extension was given after hearing a case filed by Reliance Nippon Life Asset Management Company or RNAM (now Nippon India Asset Management Company). 
 
“The court noted that that DHFL owes around ₹74,000 crore to secured creditors and ₹10,000 crore to unsecured creditors and thus secured creditors formed the overwhelming majority. Some of the company’s lenders led by banks signed an Inter-Creditor Agreement (ICA) which provided for conversion of debt to equity and restructuring of DHFL debt. However the Court noted that the resolution plan provides ‘no respite in the short run,” the report says. 
 
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    COMMENTS

    Hemant Agrawal

    1 month ago

    No one will work for retail investors interest, we have to come together and start fight. drop me a mail at hemant108 at gmail.com, we will start forming the group.

    Hudaf Shaikh

    1 month ago

    Under the Companies Act, the debenture trustee is liable for any loss caused by the trustee's failure to be diligent on ensuring that the interest of the debenture holders are protected. It is clear that huge sums of money were skimmed off to pay favored banks and shockingly even unsecured creditors by creating preferential pass through certificates on some of the securities on which debenture holders had a charge without taking consent of the debenture holders with the tacit buy-in of the trustees and bankers.

    The Court should hence order the immediate recovery of all the skimmed off funds which should be paid out on a pari-passu basis to debenture holders and other secured creditors - with any shortfall in recovery should be made good by the Debenture Trustee.

    Sankar Ganesh

    1 month ago

    Catalyst Trustee is under slavery to DHFL and they informed nothing much can be done for the secured NCD if DHFL wants to repay in 10years later. Corrupted Indian government or FM won't do anything to protect small investors.

    Ramesh Poapt

    1 month ago

    when retail(read small) investor enters a AAA co; and suffers, it can be
    the best case for ML to intervene to safe guard such investors.

    Nagaraju Bommanahalli

    1 month ago

    In India nobody knows how Indian companies are doing fraud from the beginning to last ,for example a big business men will start the company in India as below .His companies actual value is Rs2000crores but with the help of the auditors,Banks,and chartered accountants he made his company s values to RS 6000 crores by book adjustment with bribe and he call IPO that is in share market and collect Rs10000 crores in share market, first he pumped 60%of money to foreign country in the name of business and will deposit most of the money in his name next he will file bankruptcy due to losses and will write off all the loans this is the business doing in India ED is doing drama ICICI Bank chandakochar is well known to all she done huge fraud in ICICI Bank, this drama of enquire is doing from past one year, but still she is not arrested, reasons In this icici bank scam all SEBI auditors ED RBI central government rating agencies big leaders of all parties involved.central government making all efforts to avoid arrest these fellows,if arrested all all foreign country become knows most of the Indian companies running on bogus and take away all foreign investment,then India become bankruptcy.This is well known by central government hence avoiding all efforts to arrest directors of icici bank chandakochar DHFL jetairways Videocon kingfisher airline PNB bank head [email protected] etc .even Vijaymalya kingfisher airline companies don't have single plane in his companies name but all banks gave Rs10000 crores money, same type loans gave to jet airways,DLF, Devan housing finance company,[email protected],fs,etc wait in few months most of the common people investment in icici bank NBFC PSU banks equity NCD mutul funds become Zero,All parties RBI officers, SEBI, etc are corrupt they are taking India towards bankruptcy

    REPLY

    Palash Nandi

    In Reply to Nagaraju Bommanahalli 1 month ago

    Modiji is running after Mallya, Chowksi for exradition but not taking any action who are inside the country and done bigger fraud.
    This is all drama, unfortunately common man will lose their hard earned money. I am pretty sure Pulwama type thing will soon take place to divert public attention. Modi is very shrewd and choron ka raja

    arjav patni

    1 month ago

    RETAIL BOND HOLDER HAS TO GIVE THEIR LIFEIF GOVERMENT NOT COME FORWARD WITH IEPF FUND AS IT IS MADE FOR INVESTOR PROTECTION,IF IT WILL NOT HELP IT SHOULD CATCH CRIMINAL ,THIS TYPE OF SCAM WITHOUT HELP OF RATING AGENCY,BOND TRUST AND SEBI NOT POSSIBLE

    REPLY

    Palash Nandi

    In Reply to arjav patni 1 month ago

    Not a single statement heard from any minister in this regard. A to Z sob chor hai. Age se kisi bhi private company me ek paisa bhi mat do. Humlog itna hi kar sakte hai. Dekhte hai public ke bina economy kaise chalta hai

    Nagesh K

    1 month ago

    Hard earned money of common man is invested in order to get better returns. request the central government , SEBI to initiate tough punishment on the looters of common men. Else, people will loose faith in the system.

    Arun M

    1 month ago

    The common man is cheated and the complete system is a scam and protects the interests of the looters. Surprised that the government has just failed to protect the interests of the retail holders.

    manas bhatnagar

    1 month ago

    Common man has lost complete trust on the whole system, noone can safeguard interest of retail NCD holders . Noone from retail side should buy even AAA rated NCD in future , these NCDs are secured but only by name . Everyone can get paid using money power and authority except small retail holder.

    NCLAT asks ED to release Bhushan Power's attached property
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    Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
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    Staff strike for wage revision grounds HAL operations
    An indefinite strike by about 20,000 employees of the Hindustan Aeronautics Ltd (HAL) for wage revision on Monday grounded the operations of the state-run defence behemoth across the country, a union official said.
     
    "The response to our strike call has been overwhelming with all the employees abstaining from work in the nine production locations across the country," HAL trade union general secretary S. Chandrasekhar told IANS here.
     
    The wage revision is due since January 1, 2017, as the previous two revisions were in 2012 and 2007 for 5 years, respectively.
     
    A company official, however, claimed that majority of the employees reported to work at the Korwa avionics division in Uttar Pradesh.
     
    The 55-year-old aerospace major has six production complexes in Bengaluru, Hyderabad, Koraput in Odisha, Korwa and Lucknow in Uttar Pradesh and Nashik in Maharashtra and 3 research and development (R&D) centres across the country. 
     
    Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
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