DHLL board approves debt-to-equity conversion plan

“(The board has approved) the conversion of all or part of the debt into shares or other securities of the company in accordance with applicable law, the price of such conversion being in accordance with applicable law and which may result in a change of ownership of the company,” the company said in a stock market filing.

Earlier this month, DHL said its draft resolution plan, which has been submitted to lenders, saves creditors from having to take haircuts on principal repayments.

The lenders are currently preparing the resolution plan for DHFL under the Reserve Bank of India‘s new troubled asset resolution framework released on June 7. According to the central bank’s circular, 75% of lenders by value of total distressed credit facilities outstanding and 60% by number must agree to an inter-creditor agreement that will bind all lenders.

Read also : EPFO seeking early redemption of DHFL bonds worth ₹700 crores

State Bank of India has an exposure of approximately ₹10,000 crore to DHL, the bank’s chairman, Rajnish Kumar, told shareholders at its annual general meeting in June. Other lenders are Bank of India, Central Bank of India, Andhra Bank, Canara Bank, Punjab National Bank and Corporation Bank.

Last December, DHFL had an outstanding debt of ₹1 trillion — 38% bank loans, 47% debt market exposure and 10% through deposits.

DHL has been among the hardest hit by the liquidity crunch facing non-bank lenders after Infrastructure Leasing and Financial Services Ltd defaulted last year. Defaults increased the cost of funds and made it more difficult for the shell lender to borrow from banks and the bond market. Without access to new funds, the lending activity of DHFL came to a halt with no new disbursements.

Mint reported on Aug. 23 that lenders are set to declare 65% of outstanding loans to the troubled mortgage lender as unsustainable, as part of a debt settlement plan.

of total ₹24,700 crore of unsustainable debt, or the portion of loans that DHFL cannot repay through its cash flow, ₹760 crore will be converted into shares at ₹54 per share, while ₹8,740 crores will be recast into unsecured debt which will not generate any interest payments.

The rest ₹15,200 crore of unsustainable debt will be converted into 10-year non-convertible debentures with a 6% coupon rate and will be allocated to its lenders.

the ₹13,300 crore so-called sustainable component of bank loans will receive an annual interest of 8.5% and are to be repaid over eight years. The mortgage lender has a total bank debt of ₹38,000 crore as of December 31, according to the latest investor presentation available.