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With a total of 33,000 crore offer to takeover DHFL, Gautam Adani emerges as the top contender in the race to buy DHFL

Billionaire Gautam Adani’s roads – to – mining group, in the takeover offer – DHFL, has indicated that he is all set to improve on the offer of 33,000 crore bid for the collapsed housing lender, DHFL.

Four entities: Adani Group, Primal Group, Oaktree Capital Management ( a US-based asset management company), and SC Lowy, had in October submitted bids for DHFL.

However, the other three bidders want Adni to be out of the race for supposedly missing the deadline, a charge that the Adani Group has vehemently denied, saying it has followed the due process and instead has accused the ‘cartels’ of wanting to prevent value maximization.

Nevertheless, the lenders, who are getting the DHFL auctioned to recover the unpaid loans, want the four bidders to revise and up their bids because they found the initial offers too low.

Adani Group’s previous bid was only for DHFL’s wholesale and Slum Rehabilitation Authority (SRA) portfolio. Later in the revised offer submitted in November, the Adani Group bid for the entire book. They offered a total of Rs 30,000 crore, plus an interest of Rs 3,000 crore.

The others in the race Piramal Group quoted Rs 23,500 crore (Retail Portfolio, DHFL) SC Lowy bid Rs 2,350 crore for SRA.

DHFL controversy

The Piramal Group, also a bidder for DHFL, had expressed its reservation against the Adani Bid, citing that Adani’s offer was submitted much later than the submission date of November 9.

Piramal Gropu had submitted a bid of Rs 25,000 Crore for DHFLs retail bid. Adani’s; topped the bid with Rs 31, 000 Crore for the entire company.

What does DHFL bring to the table for Adani’s

Adani Capital has been on the lookout to expand gradually and opened around 100 branches in the last 2 – 3 years.

It is now looking to expand faster and make its presence in the NBFC sector. If the Adani’s win the bid, it will offer the company synergy to its NBFC business. Hence, the company is keen to acquire DHFL.

What happened to DHFL?

DHFL, a non-banking financial company, also known as the shadow bank – which means that it does not have a banking license or access to central bank liquidity but is still involved in financial services, primarily giving out loans to home buyers in Tier 2 and Tier 3 cities in the country.

In 2018, IL&FS, another major NBFC, went bust, causing the banks to adopt a more conservative approach towards lending money to NBFCs. However, this led to a liquidity crunch as they were limited access to funds. 

Many NBFCs rely on short-term borrowing to finance long-term lending. With the banks adopting cautions in lending, it put the NBFCs in a difficult position when there is a liquidity crunch.

DHFL stock took a hammering when the IL&FS crisis emerged in September 2018 by as much as 60 percent.

In January, Cobrapost alleged that the company’s promoters were involved in a scam to the tune of Rs 31,000 crore to siphon off money. The company denied and later announced that an independent chartered accountant’s inquiry fount these allegations to be untrue.

However, the allegation and the liquidity crunch put DHFL in a difficult situation and forced the company to sell many businesses to ensure that the bad debts were settled. 

On June 4, the company could not pay about Rs 900 crore worth of interest, which prompted the rating agencies to downgrade all of its commercial papers.

The company insisted that its problems were temporary in nature and promised to pay back the amount within the seven- day – grace period. 

The company said that if it were able to pay the said amount, then it would smoothen the feathers and the questions as to whether the company can survive, and it will also be an indication that the company is only facing a ‘liquidity issue.’

DHFL then had insisted that the underlying assets that the company holds, a significant part of which were the housing loans are valuable and have a very low non -performing asset percentage.

But the value of these underlying assets was about Rs 1 lakh crore. Hence, if the company were to go under it, it would be a massive blow to India’s financial markets.

The failure of the company also affected those who had extended credit to the company. It included about Rs 50,000 crore from banks and another Rs 30,000 crore from the Life Insurance Corporation, pension funds, and more. This was not just about DHFL failing but also impact on the already beleaguered banking system.

How DHFLs downfall affected the Mutual Funds?

Any Mutual Fund that owned DHFL debt had to move very quickly. The mutual funds allow for the investors to put their money into a selection of stocks hand-picked by the fund manager.

As DHFL missed its payments, rating agencies moved immediately to change its rating and moved DHFL down to ‘D.’ 

Subsequently, the mutual fund companies followed suit and marked down all DHFL debt 75 percent.

As of July 2019, DHFL owed Rs 83,873 crore to banks, the National Housing Board, Mutual Funds, and bondholders.

The State Bank of India and other banks declared DHFL account as NPA, and the NBFC was sent to bankruptcy.

DHFL Bidding Saga

They were more than 24 entities that bid for DHFL.

DHFL bidders were almost more than 30 in number, of which 14 bids were for its entire operations.

Bain Capital’s Integral Investments South Asia VII fund, the US-based KKR Credit Advisors, Adani Properties, Welspun group’s Astronomical Logistics, Blackstone arm BCP Topco VIII fund, Piramal Enterprises, and Hero Fincorp were among those that bid for the entire operations of DHFL.

Hong Kong-based Lonestar Asia Pacific Acquisition, Kotak Investment Advisors, Singapore-based SSG Capital Management, Varde Partners’ VFSI Holdings, Aion arm Racion Revitalisation, Oaktree’s India Opportunities Investment Fund, and leading domestic ARC Arcil also bid for DHFL’s full operations.

Deutsche Bank AG, Edelweiss Financial Services, Barings’ Maple II BV, Phoenix ARC, Warburg Pincus’ Baywater Investment, SC Lowey Primary investments, and Multiples Private Equity III put in their bids for part of DHFL.

The list also included – Vastu Housing Finance Corporation, Asia Pragati Strategic Investment Fund, Promontoria Holding 206 BV (Cerberus), and Burlington Loan Management (Davidson Kempner)

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