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DHFL Indicates It May Default Again on Payment Obligations

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DHFL has said that its payment obligations falling due in the immediate future may not be met as per their existing schedule.

The development comes barely two days after it said the special committee of lenders approved a draft resolution plan which the company formulated in consultation with financial adviser Ernst & Young.

“Given ongoing discussions on the resolution plan with lenders who have signed the inter-creditor agreement (ICA), the company believes that its payment obligations falling due in the immediate future may not be met as per their existing schedule,” DHFL Chairman and Managing Director Kapil Wadhawan said in a statemen.

“We would however like to reiterate that the company remains committed to resolving the issues being faced by it and is making best efforts to work out a resolution plan which will be in the best interest of all stakeholders,” it said.

DHFL has been facing a liquidity crisis since September 2018 but has paid over Rs 41,000 crore towards discharging its financial obligations. This has been without recourse to any significant funding to the company, a situation exacerbated by multiple rating downgrades.

DHFL met its financial obligations during this period mainly through a combination of securitisation of assets and repayment collections.

The company said it has been working towards resolving its liquidity crisis in a comprehensive and timely manner. As a step towards resolution, it has formulated a draft resolution plan as required under the Reserve Bank of India’s June 7 Prudential Framework for Resolution of Stressed Assets which has been submitted to the lenders.

“While most of the lenders have executed the ICA, one of our debenture trustees — Catalyst Trusteeship Services Ltd — is also undertaking the process of seeking consent from debenture holders to be a party to the ICA,” said Wadhawan said in the statement.

DHFL is the fourth-largest Indian housing finance company based on loans outstanding as of March. In fiscal 2019, DHFL reported a negative return on assets of 1.1 per cent versus a positive return of 1.2 per cent the year before. Its shareholders’ equity or total assets ratio declined to 7.6 per cent as of March from 8.7 per cent a year earlier.

The company declared its March quarter results after months of delay on July 13 and reported a loss of Rs 2,223 crore.

Earlier this week, DHFL said that there will be no principal haircuts for any creditor. It said the resolution plan to address asset-liability mismatch entails a moratorium on repayments. The company is seeking funding from the banks and the National Housing Bank (NHB) for starting retail funding activity.

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