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In news from the finance space, lenders to Dewan Housing Finance Corporation (DHFL) have agreed on a three-level resolution plan that includes conversion of debt to equity and issuance of nonconvertible debentures.

As per an article in The Economic Times, this step will give creditors majority stake in the embattled financier and help resume stalled credit lines.

Here's an excerpt from the article:

  • The plan that lending banks have broadly agreed upon involves conversion of some debt into equity. This is a small portion, may be 1%. The majority part of the equity conversion will come from the haircut banks take on the wholesale loans of the company, at a nominal price of Rs 1 per share, which will give banks a majority share in the company.

Banks have a collective Rs 350 billion exposure to DHFL through loans, and the lenders also hold debentures. Bond holders, which include mutual funds, insurance companies and pension funds, also have a Rs 450 billion exposure.

State Bank of India (SBI)Bank of Baroda and Union Bank of India are the top lenders to the company.

DHFL is now classified as an SMA 2 (special mention account 2) exposure, meaning loans where the payment of interest is delayed for more than 60 days but less than 90 days. That means the account is still not classified as nonperforming.

Banks said the last payment DHFL made on its loans was on May 5, and that they are awaiting the next payment that fell due in July.

The restructuring plan being worked out by lenders also includes conversion of some loans into non-convertible debentures, instruments that will be long term in nature and give the company some breathing space on repayments.

Mutual funds that have exposure to the company have also written to the markets regulator, seeking permission to sign an inter-creditor agreement (ICA) with lenders to join the resolution process in keeping with the central bank's June restructuring guidelines.

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