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Out of a mess

7 January 2021 By Una Galani

Distressed debt investing is proving to be especially stressful in India. U.S. fund manager Oaktree and domestic pharmaceuticals-to-finance company Piramal Enterprises have submitted competing $5 billion offers for a collapsed housing lender. The complex mix of criteria being used to score bids complicates matters in a process marred by missed deadlines and mudslinging. There are nevertheless small signs that the young insolvency regime is finding its feet.

Dewan Housing Finance, or DHFL, defaulted on some of its $12 billion in liabilities and was pushed into insolvency proceedings just over a year ago. Officials tweaked the then barely three-year-old bankruptcy code to unwind the financial institution. The result is a rare opportunity to buy a sizeable lending business in the country.

The saga has involved multiple “final” rounds. Suitors balked in November after tycoon Gautam Adani’s eponymous group submitted a late bid which cheekily expanded on his original one. In recent days, Oaktree wrote to both the Reserve Bank of India and a creditor committee led by State Bank of India to complain that its offer is being misrepresented.

Deciding the outcome will be challenging. Bankruptcy is intended to get creditors as much as possible, but there are more factors to consider here. A score sheet compiled by the administrator and seen by Breakingviews shows a mixed picture. While Oaktree scores slightly higher on cash recovery in net present value terms, offering about 40 cents on the dollar, Piramal rates better on upfront cash and fresh capital. Both did equally well on management. There are other wrinkles, too: DHFL’s insurance subsidiary is subject to foreign investment rules that make it more convoluted for Oaktree to close a deal.

The better news is that the recovery rate will be higher than before the new bankruptcy law came into force, and the case should be resolved quicker than past workouts. What’s more, a now-jailed tycoon behind DHFL hasn’t stalled the process despite attempts to reclaim the company. Previous fights over troubled assets such as Essar Steel helped establish that he isn’t eligible. The DHFL battle reveals the growing pains of India’s bankruptcy code, but there are encouraging signs of a cleanup amid the mess.


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