The Piramal-DHFL Deal marks the first successful resolution under the Insolvency and Bankruptcy Code (IBC). What are the deal details, and which parties are the beneficiaries, let’s discuss much more about this deal in detail.
Introduction:
On Wednesday 29th September 2021 Piramal Enterprises has said that it has completed the acquisition of Dewan Housing Finance Limited (DHFL). Piramal Enterprises acquired the company for the total amount of Rs. 34,250 Cr. which includes cash component and non-convertible debentures. With this, this deal will mark the first successful resolution in the financial sector under the Insolvency and Bankruptcy Code (IBC).
Stocks to be benefited:
1) State Bank of India (SBI)
2) Bank of India (BOI)
3) Union Bank of India
About the Deal:
- Piramal has completed the acquisition of DHFL for Rs 34,250 crore
- The creditors of DHFL (including FD holders) would recover an aggregate amount of Rs.38,000 crores from the resolution process of DHFL.
- The Amount comprises of :
- Rs. 34,250 Crores to be paid by PCHFL as a combination of cash and Non-Convertible Debentures.
- The total consideration paid by the Piramal Group of Rs 34,250 crores after the acquisition, includes an upfront cash component of Rs 14,700 crores and issuance of debt instruments of Rs 19,550 crores (10-year NCDs at 6.75% p.a. on a half-yearly basis).
- an amount of ~Rs. 3,800 Crores, which is the entitlement of creditors (as per the resolution plan), from the cash balance available with DHFL.
- The resultant entity will be called PCHFL.
- The merged entity will have 301 branches and 2,338 employees catering to approximately a million lifetime customers across 24 states, making it one of the leading housing finance companies in India.
Total Claims by DHFL Creditors:
Total Claims by DHFL Creditors
- The total loan of SBI to the DHFL amounts to Rs. 7,267, highest among the other 2 Public Sector Undertaking (PSUs) Banks.
- Next to SBI, the biggest PSU creditor for DHFL is Rs. 4,125 Cr. and Union Bank of India is Rs. 3,605 Cr.
- All of these dues amounts of these banks have already been provisioned and hence the recovery of this amount will strengthen the bottom line i.e., the profitability of these banks.
Recovery Analysis:
Recovery Analysis- Cash Recovery
- The total claims against DHFL amount to Rs. 87,000 Cr. out of which around Piramal Capital and Housing Finance will be paying out creditor of Rs. 37,400 Cr. which equals around 43% of the total claim of the DHFL.
- This recovery will be done in 2 parts:
- The first one is the Cash Component which will be 20% of the total claim i.e., around Rs. 17,400 Cr.
- While the second and the last mode is Non-Convertible Debentures (NCDs)- 23% of the claim or Rs. 20,010 Cr. in value terms.
- Moving ahead if we dive into the matter, we come to know that these creditors are not going to receive their total due amount towards DHFL but only up to 20% of the cash deal.
- For instance, the total exposure of SBI towards DHFL is Rs. 7,267 Cr., for which it will be paid Rs. 1,453 i.e., 20% of the total claim of SBI towards the DHFL.
- Likely, BOI will be paid Rs. 825 Cr. against its total exposure of Rs. 4,125 Cr., and Union Bank of India will be paid Rs. 721 Cr. for its total credit of Rs. 3,605 Cr. to DHFL.
- These cash recovery amounts are the Expected writebacks accounted for September 2021 quarter, unless any provision for Fresh Slippages during September 2021.
Conclusion:
Above discussed stocks are not direct advice to invest in and hence one should follow due diligence before making any investment decision.
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