Race to acquire India’s DHFL intensifies as Piramal, Oaktree agree to sweeten bids

The race to acquire bankrupt Dewan Housing Finance Corp. Ltd (DHFL) has intensified with top bidders Oaktree Capital Management and Piramal Group offering to sweeten their bids as the sale process entered final negotiations, two people directly aware of the developments said.

The bidders agreed to improve their proposals after the committee of creditors (CoC) to DHFL found the offers of Oaktree and Piramal in the fourth round of bidding equally competitive, the people said on condition of anonymity.

The developments demonstrate the fierce competition between the two suitors to take over the home financier amid a significant recovery in the quality of its assets from the initial months of the pandemic and a wider revival in the non-banking space, helped by falling credit costs.

In the latest meeting with the lenders on 18 December, Piramal group proposed to invest an additional 4,000-5,000 crore in DHFL if it wins the bid, said one of the two people cited above, who is also a member of the lenders’ panel.

Piramal had bid 32,250 crore in the fourth round, slightly lower than Oaktree’s bid of 32,700 crore. The attractiveness of a bid is, however, judged on how much money they offer lenders’ upfront and other criteria.

Oaktree has also agreed to ease one of the key conditions in its bid. It has offered to specify the period of the holdback of 1,500 crore for meeting potential contingencies arising from DHFL’s life insurance business, the person said.

In its offer, Oaktree had mentioned a clause, which states that the sum will be kept as a holdback by Oaktree for an unspecified period from its upfront payment offer worth 11,700 crore. The firm said that the money will be used to pay for potential contingencies arising from DHFL’s life insurance business.

“The lenders are not satisfied with this conditional proposal as it gives rise to several uncertainties. The CoC has asked Oaktree to specify the period for which the holdback clause will be effective. And, Oaktree has agreed to specify the duration of holdback,” the first person said.

The lenders will put the two offers to vote on Wednesday to select the new owner of DHFL, which will also be forwarded to NCLT for approval.

Piramal’s offer to bolster its investment in the acquired firm comes after CoC asked how it plans to sustain DHFL’s lending business if the cash in the books is used to pay the creditors.

“Around 9,000-9,500 crore is sitting as cash in DHFL’s book, but that does not belong to any bidder; it belongs to lenders. If that cash is meant to be repaid to lenders, there will be hardly anything left in the book. We have asked Piramal that to sustain and improve the business of DHFL, they should bring in at least 15-20% separately to ensure there is enough working capital for sustaining DHFL’s growth post the acquisition,” said the second person, who is also a member of the CoC. “To this, Piramal has offered to infuse 4,000-5,000 crore of fresh capital into DHFL”.

Piramal has also been asked how the credit rating of the firm (the entity formed after Piramal merges its financial services unit with DHFL) can be improved so that the debt papers proposed to be sold by DHFL to the lenders post the proposed merger have enough market value.

Piramal has proposed in its bid that the merged entity will sell non-convertible debentures (NCDs) worth 19,500 crore at a coupon of 6.75% to the lenders, if the group wins the DHFL auction.

“Piramal has said that it currently has ‘AA+’ rating for the financial services firm that is proposed to be merged with DHFL. Once the merger happens and fresh capital infusion of at least 4,000 crore is done, the rating of the merged entity will be somewhere in ‘A’ category, and not lower. This will make the proposed NCDs adequately marketable,” said the first person.

Since the CoC is also not certain about the structure that will be deployed by Oaktree to hold the insurance arm of DHFL, after a meeting late Friday, Oaktree has agreed to carve out a new structure and provide clarity on this matter. The FDI limit in insurance is 49%, and Prudential Holdings already owns 49% in DHFL’s life insurance business.

A Hong Kong based spokesperson from Oaktree Capital Management declined to comment. A Piramal spokesperson also declined to comment, while emails sent to SBI and Adani did not elicit any response at the time of going to press.

The article was first published on livemint.com,

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Following vacancies can be applied for (only in Singapore).   

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Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.