NCLT process for Dewan Housing raises fundamental questions
The bidding for the assets of DHFL is becoming a highly controversial affair. At first, the bidders objected to delayed bids put in by Adani Enterprises. Now, the COC or the committee of creditors has called for final bids on December 14 with bidders having the option to either submit fresh bids or retain the bids they had submitted on 17 November. But the earlier bidders have now threatened to go to court if Adani was allowed to bid for the full assets of Dewan Housing. But, first the genesis of the dispute!
Bidding for Dewan Housing
The problems for Dewan Housing began when they started to default on their debts due to cash flow mismatch. Once the RBI was convinced that the business model was unviable, it referred DHFL to the NCLT as a special case due to its systemic importance. Currently, DHFL has outstanding loans to banks and other lenders worth Rs.88,000 crore. The only way the money can be paid back is by hiving off the assets of DHFL.
In the first round of bidding completed on 17 November, there were 4 major players. SC Lowy bid only for the Slum Rehabilitation (SRA) plan while Oaktree Capital and Piramal bid for the total assets of DHFL. Adani bid for the wholesale book and the SRA of DHFL. Subsequently, Adani put in a revised bid for the total assets of DHFL since it found the other bids too low. That was the genesis of the whole bidder dispute.
NCLT will look at COC interests
The details are not too clear and may eventually end up in the court. Prima facie, the other bidders have a point that Adani bid was more after-thought and hence should not be entertained. Adani denies these allegations, and has held on to its view that the overall bid was in sync with the guidelines. But that is not the point. The point is; what will the NCLT really focus on? The primary focus of the NCLT will be to go by the recommendations of the COC, which is the set of banks and creditors who need to recover money from DHFL. The COC would obviously look at intent to pay, the ability to pay and focus on the best price realizable. That would clearly favor Adani, unless others can match the Rs.35,000 crore bid put in by Adani.
Precedent in Binani Cements
There is a classic precedent for this case in the Binani Cements insolvency. In that case, Ultratech had bettered the offer by Dalmia Cements by nearly Rs.1000 crore. Even though Ultratech bid came in later, the COC opted for the offer as it would substantially reduce the haircut to the lender. If you go by that precedent, Adani clearly has an advantage in the bidding process as the courts would prefer to leave this to the judgment of the COC. It may look a tad unfair, but in case of loan recovery, the pragmatism of the situation matters more than the idea of fairness!