Thousands of shareholders of Dewan Housing Finance Corp. Ltd (DHFL) are set to be wiped out as Piramal Group, which won a bidding war for the bankrupt mortgage lender, is set to delist the shares of the home financier and merge it with Piramal Capital Housing Finance Ltd, two people directly aware of the resolution plan said.
The proposed plan is expected to lead to major losses for DHFL stockholders as it does not envisage any offer to buy out the shares held by these investors, unlike a regular delisting process. DHFL shares rose 4.85%, its maximum daily limit, to ₹30.25 on Wednesday as investors piled into the stock.
“The shareholders remaining on the day of delisting will not get any money since Piramal has not made any offer to equity holders. So, it will be a pure loss for these equity investors of DHFL,” said one of the two people cited above, requesting anonymity.
Thousands of retail investors have over the past few months bought the shares of the bankrupt mortgage lender, hoping to gain from a delisting offer to the public or a turnaround. DHFL’s shares have doubled in the past three months. Retail public shareholding in DHFL rose to 39.12% as of 31 December from 36.46% a year ago.
In a conventional delisting process, stocks held by the public shareholders are bought back by the promoters through a reverse book building process. According to Piramal Group’s proposal, the delisting will happen after the bankruptcy court’s approval. Piramal Group has not made any provision to buy out DHFL shareholders.
A Piramal group spokesperson did not respond to emailed queries.
“One of the key clauses of Piramal’s resolution proposal is Piramal will delist the shares of DHFL if its bid is approved by the Reserve Bank of India and the National Company Law Tribunal (NCLT). The committee of creditors and the administrator have approved this condition,” said the first person.
“The committee has sent Piramal’s proposal to RBI. The proposal should not take more than 90 days for implementation, which will include payment of dues to the creditors and the merger of Piramal Capital with DHFL. During this period, Piramal will also pay interest income to the creditors. RBI is likely to approve Piramal’s proposal because the acquirer already has an experience in running an NBFC (non-banking financial company),” said the first person.
After a fierce bidding battle for over four months, DHFL’s committee of creditors on 16 January approved Piramal Group’s bid to take over the entire business of DHFL for a total capital commitment of over ₹38,250 crore. Most of this capital will go to the lenders, including banks, non-bank lenders and bondholders.
Piramal has made an upfront payment offer of ₹12,700 crore to DHFL’s creditors. Subsequently, non-convertible debentures worth ₹19,550 crore will be issued to the lenders as per Piramal’s proposal. Piramal has also proposed to pay an interest income of ₹1,000 crore to the creditors during the period between NCLT’s approval of the final plan and its actual implementation. Piramal has proposed to buy out the insurance business of DHFL for ₹1,000 crore. It has also committed to infusing around ₹3,800 crore into the entity formed by the merger of Piramal Capital and DHFL.
DHFL owes close to ₹85,000 crore to a consortium of lenders led by State Bank of India who are poised to recover about 41% of the dues if Piramal Group’s offer is accepted.