DHFL Resolution Plan Will Allow Promoters Continue Previous Malpractices, Alleges Whistleblower

The resolution plan (RP) as proposed by financially stressed Dewan Housing Finance Corporation Ltd (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, alleges a whistleblower.

DHFL's projected cash flows from project and mortgage loans have been mapped to liabilities, including term loans -3 (external commercial borrowings - ECBs) at Rs444 crore and non-convertible deposits (NCD)-3, including banks, National Housing Bank (NHB) and NCDs at Rs11,536 crore.

This amounts to Rs11,980 crore, and DHFL proposes to repay the liabilities over a 10-year period beginning FY19-20. In this case, an internal rate of return of 8.50% has been proposed with step-up interest rates.

The whistleblower calls this cash flow as accounting treatment. He says, "…they (DHFL) are proposing a 40%-50% write off of liabilities on NPV basis and most of these written off liabilities are also to be received in a longer time frame (10-20 years) irrespective of the current maturity of these liabilities. What this does is it allows the DHFL 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. Also, if the conservative asset valuation by Ernst & Young (EY) proves to be wrong or understated, entire benefit flows to the promoters as they will continue to hold 10% equity stake post restructuring. Also, after write off of liabilities, they plan to bring a new promoter for selling their stake at the 'actual' fair value."

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.



Through the RP, DHFL proposes to convert 2.3% of each category lender's debt exposure into equity at an assumed price of Rs54 per share. On Monday at 2.26pm, DHFL, however, was trading 7.5% down at Rs39.10 on the BSE. So for lenders, who will have to already take a haircut as per the RP, this looks a loss-making proposal.

Banks have an exposure of Rs38,342 crore in DHFL. Of this, the RP proposes to convert 2.3% into equity at Rs54 per share or about Rs871 crore. For NCD-holders with an exposure of Rs30,616 crore, the conversion in to equity comes to Rs695 crore. Others, like ECB-holders with an exposure Rs2,747 crore, NHB at Rs2,350 crore, and holders of perpetual debt at Rs1,263 crore, commercial paper Rs100 crore, and subordinated debt of Rs2,267 crore, will also have to opt for the debt to equity conversion formula.

Interestingly, a few days back, out of the 87,000 debenture-holders, who had been asked to be party to DHFL's resolution plan being deliberated upon by banks, only 24,400 debenture-holders, or less than 30%, had responded before the due date of 25 September 2019, says a report from the Mint.

Banks have signed an inter-creditor agreement (ICA) to come up with a plan to restructure nearly Rs1 lakh crore of DHFL's debt and had been trying to get bond-holders on board as well for the plan to succeed, the report added.

However, from the RP, it is not clear, whether these lenders would accept the offer, especially as stated above, DHFL's price as on Monday is far below (Rs39.10) what is proposed in the  debt to equity conversion formula (Rs54).

According to a whistleblower, public sector banks (PSBs) are trying hard for acceptance of the DHFL RP from all debtors. "If this resolution plan is accepted, the exposure to DHFL is not reported as an non-performing asset (NPA) and there is no requirement for provisioning. Banks will not have to do mark-to-market (MTM) of their restructured loans (unlike bond-holders) thereby the 'power of incentives' is working in the favour of acceptance of plan. Furthermore, what banks have done is they have specifically asked DHFL to further make payments up to 5 July 2019 from previous cut-off date of 25th June to avoid NPA reporting in their quarterly accounts. These payments to unsecured lenders have been done to the disadvantage of other secured lenders, completely arbitrary payment and against the principle of fairness and waterfall mechanism," he alleges.

He also alleges that DHFL promoters have stopped all payments and are, in effect, threatening the bond-holders that they will not be paid anything unless they sign on the resolution plan.


"The company is accruing cash flows every day which is being kept at PSU banks escrow account and even though the company has the ability to pay, it is happily committing wilful default as the idea is to get the liabilities written off. Also, their explicit threat is that no other recovery process will work as we will present this resolution plan only in every forum which is also accepted by PSU banks and you will also have to accept. And if you don't accept the plan, you will get a liquidation value today (which is discounting all the conservative cash inflows by a high discount rate of 15%) thus leading an even higher haircut of around 75%," the whistleblower alleges.

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    Aditya G

    1 year ago

    My guess is that this will end up in courts. Add 20 more years to sort it out. This is the whole problem with our resolution process. Our bankruptcy law needs to be refined in a way that resolution professionals call the shots and not the courts.

    Yashpal singh

    1 year ago

    Kya dhfl home loan ka part payment ka bhugtan karega aur kab tak hoga please bataye sir

    Kunal Jolly

    1 year ago

    this article does not provide the entire information seems misleading;


    "Full repayment is applicable for investors and depositors with up to Rs 10 lakh outstanding."


    Nilesh Kamath

    In Reply to Kunal Jolly 1 year ago

    That report is a old one dated August 22 when the RP was under consideration while this one is a proposed resolution plan. btw i am also a Deposit Holder and will be happy if i am paid in full .Let us hope for the best

    Ramesh Poapt

    1 year ago

    icu patient will be allowed to die? air india, jet, ifsl..... inordinate delay in all
    big cases? decide quickly so that other waiting patients can b admitted!


    1 year ago

    Company has been boasting of clearing 50,000 crore debts ot of 1 lak crore. But ICA agreement states 83,000 crore debts on paper. Some where nos doesn't match clearly


    1 year ago

    The Analysis is spot on. DHFL's Resolution Proposal should be in the best interests of the Secured Lenders first and foremost. However, this Draft is designed to be in the best interests of the Promoters. These crooks in cahoots with PSU banks wanted to hoodwink Retail NCD Holders into taking a very bad deal. Fortunately, majority of them did not consent to the ICA. Now, we the retail NCD holders, are dependent on the MFs and other DIIs. They need to stand strong against the Banks muscling this or some other bad deal through the ICA or IBC.

    Dear Whistleblower, If you are reading this, let me know if there is some way to contact you. (a fake email would do!). I would like to discuss if there is something we NCD holders can do to stop this disaster. Thank you for your effort!


    manas bhatnagar

    In Reply to PM 1 year ago

    Even I am ready to move against the company , i am willing to join any legal battle also please contact me on [email protected] . I think its time all retail bondholders start to get together and move as one for our rights.


    1 year ago

    As part of resolution plan, management should be handed over to New team. No point in same management team continue to run the company who caused the failure in the first place.

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