DHFL


*What is happening around DHFL?* - A short summary!

Let us summarize some developments that are happening around DHFL in a simple (might not be strict) language for you.

DHFL is due to make some payments for the interest on its bonds yesterday. It failed to make the payment. *As per rules, the receiver has to give a notice asking them to pay within 7 days or else face the legal consequences apart from being named as a defaulter.*

As per SEBI rules, a company is defaulter even if he defaults for a single day. A similar provision is there with RBI when handling bank loans too in the context of NPAs.

*So, technically DHFL has 7 days’ time to make the payment or else become an official defaulter.*

Meanwhile, yesterday evening CRISIL downgraded commercial paper of DHFL. This will force all mutual funds to take appropriate corrective actions. The most common action is side pocketing – moving the troubled instruments aside so that when repayment happens, existing investors will be paid. By side pocketing, new investors of the scheme will not get effected because of the old exposure of the scheme in troubled loans.

*Several debt funds having exposure to DHFL paper have side pocketed and hence their NAV crashed.* As much as 75% of the loan amount is side pocketed as a consequence of the downgrade.

While MFs should have been more careful when handling such companies, investors should understand that when recovery from DHFL happens, the existing investors will get back their money.

*A couple of days ago, Aion Capital is reported to be showing interest in a majority stake for DHFL.*

Today (5 June), Blackstone confirmed it will make payment of Rs. 1150 on Monday. Blackstone bought Aadhar assets from DHFL and is due to make payment. So, come Monday, DHFL is likely to receive the funds and make payments. The companies had to mandatorily wait for one month in order to finish the deal and hence the wait period.

So, temporarily DHFL is sort of avoiding the defaulter tag. However, there are more loan repayments due going forward, particularly till July-end. So, the stress is still there.


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