DHFL’s resolution turning for the better, but there is risk of buyers remorse

It has been more than a year since India’s banking regulator initiated insolvency proceedings against a broke housing finance company mired in governance controversies.

The saga of Dewan Housing Finance Corporation Ltd’s (DHFL) insolvency procedure has been intriguing over the past one year. The task to find bidders had looked challenging initially and bankers having exposure to DHFL were getting resigned to large haircuts in the beginning itself. Lenders have already made sizable provisions against the account assuming haircuts in excess of 50%. The plight of thousands of fixed depositors also hangs in the balance.

But now, the plot has turned in favour of financial creditors with the final clutch of suitors competing intensely with each other. The valuation of DHFL has also gone up with revised bids. What’s more is that some bidders that demanded immunity from legal ramifications under the insolvency code are now ready to drop these demands. In short, bidders are sweetening the deal for creditors. What explains this change in approach to DHFL as an asset?

According to analysts, the committee of creditors have made a strong case on the value of the underlying asset. DHFL may not be growing as it cannot undertake fresh lending but asset quality issues have been dealt with. DHFL’s net loss has narrowed to ?2,122 crore in the September quarter from ?7,635 crore in the March quarter. Another encouraging sign has been the improvement in its collections despite the ongoing pandemic. Needless to say, its retail loan book is the priced asset that bidders want.

Moreover, the housing finance market is looking up with home sales registrations rising and investors perhaps see this as an opportune moment to enter the market. “The assets of DHFL are good and the potential to grow is there. That is what bidders are looking at and willing to pay for. While the final deal contours will have to be looked at, prima facie it does not seem like the new owners will have trouble," said an analyst.

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