Troubled shadow banks Dewan Housing Finance Corp. Ltd (DHFL) and Altico Capital are likely to be the first set of financiers to land up in bankruptcy courts, two people aware of the matter said.
The Reserve Bank of India (RBI) is currently in talks with lenders to DHFL and Altico before making an insolvency reference, the people said on condition of anonymity.
A government notification on 15 November has brought financial firms under the Insolvency and Bankruptcy Code (IBC), provided they have assets of at least ₹500 crore, and that the central bank makes the bankruptcy reference.
The central bank is working on the final contours of a plan to refer the National Company Law Tribunal, the people said. “While DHFL is almost certain to be referred to NCLT, there is still some ambiguity over Altico,” the first of the two people said. Lenders to DHFL will discuss the plan at their meeting on 25 November.
The corporate affairs ministry has notified the framework for dealing with systemically important financial services providers (FSPs) excluding banks under the IBC, wherein sectoral regulators can seek resolution of stressed entities. Under Section 227 of the Code, the central government can notify, in consultation with the financial sector regulators, FSPs or categories of FSPs for the purpose of insolvency and liquidation proceedings.
“Once final, the central bank will refer the final names to the department of financial services (DFS) and then approach the National Company Law Tribunal (NCLT),” said the second person cited above.
State Bank of India (SBI), which has exposure to both companies, has already appointed law firm Cyril Amarchand Mangaldas as its legal adviser for the planned insolvency resolution, the second person said.
“Without a resolution mechanism, it would have been very difficult to resolve stressed entities in the NBFC space. However, there is execution risk and we will need to see how it pans out since the track record with corporate resolutions via IBC has been quite slow and extremely litigious,” said Saswata Guha, director, Fitch Ratings.
Questions emailed to RBI, SBI, DHFL, Cyril Amarchand Mangaldas and Altico remained unanswered till press time.
Lenders were earlier working on a resolution plan for DHFL under which they were to convert a part of the debt into equity and take a 51% stake in the mortgage lender. However, DHFL has also been dragged to the Bombay high court by a set of mutual funds that had purchased its non-convertible debentures (NCDs). There are also fixed deposit holders and retail NCD holders seeking to recover their dues.
SBI has an exposure of about ₹10,000 crore to DHFL, the bank’s chairman Rajnish Kumar told shareholders at its annual general meeting in June. Other lenders to DHFL include Bank of India, Central Bank of India, Andhra Bank, Canara Bank, Punjab National Bank and Corporation Bank. As on 6 July, DHFL’s total debt stood at ₹83,873 crore, of which ₹38,342 crore was owed to banks.
Altico’s troubles started when it missed an interest payment to Dubai-based Mashreq Bank on 12 September. Following the default, CARE Ratings downgraded Altico Capital to Care B with negative outlook. Mint reported on 9 October that Altico proposed to sell loans worth around ₹2,000 crore as part of its debt resolution plan.
At present, Altico’s total outstanding debt stands at ₹4,361.5 crore, from 27 lenders including Yes Bank, State Bank of India and HDFC Bank, among others.
According to the people cited above, Altico which is owned by a clutch of private equity investors, has received four resolution proposals so far, which include one of its own as well as from three global private equity funds but lenders are yet to take a final call on these.
Source: Mint