Piramal, Oaktree Agree To Sweeten DHFL Bids

The bidders agreed to improve their proposals after the DHFL’s Committee of Creditors (CoC) found the offers from Oaktree and Piramal to be equally competitive in the fourth round of tenders, the respondents said on condition of anonymity.

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Developments show the fierce competition between the two bidders to take over the home financier amid a sharp recovery in the quality of its assets since the early months of the pandemic and a broader revival in the non-banking sector, aided by falling borrowing costs.

Sarvesh Kumar Sharma / Mint

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Sarvesh Kumar Sharma / Mint

At the last meeting with the lenders on December 18, the Piramal group suggested additional investments £4,000-5,000 crore in DHFL if it wins the offer, said one of the above two people who is also a member of the lenders panel.

Piramal had bid £32,250 crore on the fourth round, slightly lower than Oaktree’s bid of £32,700 crore. However, the attractiveness of an offer is judged by how much money they offer lenders in advance and according to other criteria.

Oaktree has also agreed to relax one of the key terms in its offering. It was offered to indicate the period of withholding £1,500 crore to meet potential contingent liabilities related to DHFL’s life insurance business, the person said.

In its offer, Oaktree had mentioned a clause stating that Oaktree would withhold the amount for an unspecified period of time from the value of its prepayment offer £11,700 crore. The company announced that the money will be used to cover potential contingent liabilities from DHFL’s life insurance business.

“Lenders are not happy with this conditional proposal as it creates several uncertainties. The CoC asked Oaktree to indicate the period for which the holdback clause will take effect. And Oaktree has agreed to state the duration of the holdback, “said the first person.

Lenders will put the two offers to a vote on Wednesday to select the DHFL’s new owner, who will also be forwarded to NCLT for approval.

Piramal’s offer to step up its investment in the acquired company comes after CoC asked how DHFL’s lending business would be maintained if the money on the books is used to pay creditors.

“Around £9,000-9,500 crore is in DHFL’s book as cash, but that doesn’t belong to any bidder; it belongs to lenders. If this money is to be paid back to the lenders, there is hardly anything left in the book. We asked Piramal to bring in at least 15-20% separately to maintain and improve the DHFL’s business to ensure that there is enough working capital after the acquisition to keep DHFL growing, “said the second person who also one is a member of the CoC. ”To this end, Piramal has offered to infuse £4,000-5,000 crore of fresh capital in DHFL “.

Piramal was also asked how to improve the credit rating of the company (the company formed after Piramal’s financial services merger with DHFL) so that the debt instruments proposed by DHFL to post-merger lenders would have sufficient market value.

Piramal has proposed in its offer that the merged company sell non-convertible notes (NCDs) worth NCD £19,500 crore on 6.75% coupon to lenders if the group wins the DHFL auction.

“Piramal announced that it currently has an AA + rating for the financial services company that it is proposing to merge with DHFL. As soon as the merger takes place and at least one new capital injection is made £When 4,000 crore is reached, the merged company will be rated somewhere in the ‘A’ category, not lower. This will make the proposed NCDs adequately marketable, “said the first person.

Since the CoC is also not sure which structure Oaktree will use to take over the insurance branch of DHFL, Oaktree agreed after a meeting on late Friday to work out a new structure and clarify this matter. The FDI limit in insurance is 49%, and Prudential Holdings already owns 49% in DHFL’s life insurance business.

A Hong Kong-based spokesman for Oaktree Capital Management declined to comment. A Piramal spokesperson also declined to comment, while emails to SBI and Adani elicited no response at press time.

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