Oaktree Capital And Piramal Lock Horns Over DHFL As Bidding War Escalates

DHFL Bids: After Oaktree Capital, now Piramal Group raises issue with creditors.

DHFL building in Mumbai. (Photo: BloombergQuint) 
DHFL building in Mumbai. (Photo: BloombergQuint) 

Piramal Group has urged financial creditors to Dewan Housing Finance Corp. to not consider Oaktree Capital Management’s amendments in offer for assets owned by the stressed home financier, failing which the bidding process would be open for litigation, according to three people aware of the matter.

The financial creditors are expected to open up the bids for voting this week as their scoring is now complete. Piramal Group’s offer has scored higher than Oaktree Capital’s in the evaluation matrix laid down by the creditors, the people told BloombergQuint on the condition of anonymity.

The creditors, however, face the threat of litigation from both the leading bidders.

Piramal Group’s letter to the creditors follows a last minute salvo by Oaktree Capital on Dec. 27. In its revised offer, Oaktree Capital has offered to pay Rs 1,700 crore collected as additional interest income on DHFL’s book as upfront cash payment to creditors, over and above what it was already offering. The U.S.-based distressed asset investor also said the financial creditors were erroneously not considering the Rs 1,000 crore worth upfront cash payment that it had set aside for the insurance venture where DHFL controlled majority stake. Oaktree Capital, in a separate letter to the creditors, cautioned them against disregarding its amended offer, saying that doing so would invite legal challenge.

BloombergQuint awaits responses from DHFL’s administrator, lead lender State Bank of India and Piramal Group. A spokesperson for Oaktree Capital declined to comment.

A Flurry Of Letters

The resolution process at DHFL has seen a series of legal letters from all major bidders since last month.

Adani Group, in November, had chosen to materially change its offer for DHFL by bidding for the entire loan book against its original bid to buy only the wholesale loan portfolio. That prompted Piramal Group to send a letter to the creditors warning them of legal consequences if they accept such an offer.

SC Lowy, too, had written to the creditors citing the bidding rules set by them. The Hong Kong-based stressed asset investor had said it reserves the right to pull out of the process if it disagrees with the way the creditors conduct the bidding.

Oaktree Capital And Piramal Lock Horns Over DHFL As Bidding War Escalates

To avoid litigation and give all bidders a winning chance, the creditors amended the bidding process, allowing them to revise offers and bid for the assets of their choice.

While the bidding process was on, Oaktree Capital earlier this month wrote to the creditors reiterating they follow the rules and consider offers which fully meet the criteria. The international investor warned creditors that any deviation would invite litigation, the three people quoted above said.

After final bids were submitted on Dec. 14, the creditors wrote back to the bidders seeking clarifications on certain aspects of their bids, including the valuation of DHFL’s life insurance business and the way the bidders would treat the additional interest income available on DHFL’s book in the months it would take to conclude the process, among others.

Then on Dec. 21, Ajay Piramal wrote to the financial creditors informing them that the bid submitted by his group held the most amount of value for the creditors, Economic Times reported. The letter was also marked to the Reserve Bank of India Governor and DHFL’s administrator R Subramaniakumar. Not to be left behind, Oaktree Capital also wrote to the creditors claiming that its offer was the highest based on the metrics laid down by the creditors.

In its latest letter, Oaktree Capital has contested that it had reached out to lenders before the bidding deadline seeking clarification about the additional interest income component in the structure of the bid. Since the creditors did not respond, the bidder was forced to not include the component in its bid initially and rectify its offer later.

The confusion is rooted in a point of clarification that creditors sought after bidders submitted their offers on Dec. 14. The creditors had noted that since there could be some delay between the winning bid being approved by courts and the bidder taking over the company, they had asked bidders to confirm whether they were willing to pay the interest income accrued during this period to the creditors.

Oaktree Capital had sought clarification on whether this would amount to a change in the commercials of the already submitted bid on Dec. 14, as such change was not permitted as part of the process. The creditors did not respond to that query, said the people cited above. After noting that competitor Piramal Group had offered Rs 1,000 crore in additional interest income as part of the upfront cash, Oaktree Capital sought to amend its offer after the deadline.

Oaktree Capital And Piramal Lock Horns Over DHFL As Bidding War Escalates

Delays By Litigation

The way both leading bidders have been posturing ahead of the voting lines being opened, it would appear that the committee of creditors is likely to face litigation, the first of the three people quoted above, a corporate lawyer, said.

Since the revision in offer by Oaktree Capital is worth Rs 1,700 crore upfront, the creditors do not want to let go of the higher payout. The creditors also have to justify the amendment after the bidding deadline, to avoid questions by Piramal Group, the person said.

Any litigation would further prolong the resolution process, which has already seen considerable delays. The RBI had ordered banks to invoke the Insolvency and Bankruptcy Code to resolve DHFL in November 2019. Since then the resolution process had gotten delayed owing to disruption caused by the Covid-19 pandemic.

Delays notwithstanding, legal precedent has worked in favour of what the creditors decide. The National Company Law Tribunal, which approves resolution plans, has previously stood behind the commercial wisdom of the committee of creditors. Even in cases such as the resolution of Binani Cement, where questions were raised about allowing unsolicited offers after the bidding deadline was completed, the creditors’ decision has been upheld in higher courts.

Financial creditors to DHFL are owed more than Rs 87,000 crore according to the latest details available on the housing finance company’s website.