Global investors raise concerns over sale of bankrupt Indian lender

International investors have cried foul over the sale of an insolvent finance company in India due to concerns surrounding the auction process, casting doubt on the effectiveness of the country’s overhauled bankruptcy code.

The controversy stems from the auction of shadow lender Dewan Housing Finance Limited (DHFL), a company with about $14bn of debt that was taken over last year by India’s central bank, in a process widely viewed as a test of new bankruptcy rules brought in four years ago.

Global investors Oaktree Capital Group and SC Lowy have been competing against Indian conglomerates Piramal Group and Adani Group to buy DHFL’s assets. All submitted bids ahead of a mid-November deadline.

Investors said Adani Group, one of India’s most powerful conglomerates, put in a bid for parts of the business at the same time as everyone else on November 9.

However, they said Adani then filed a second “unsolicited bid” for all the assets after that deadline. Adani Group’s bid of Rs312.5bn ($4.2bn) was only slightly higher, by Rs2.5bn, than Oaktree’s, said people with direct knowledge of the matter.

A person close to the Adani Group said all rules and regulations were being followed.

The Adani Group’s offer prompted the creditor committee to hold a vote on whether to have another round of bidding in the interest of fairness. The results of the vote are expected early this week.

The episode has thrown a new spotlight on respect for due process in India and the speed of its bankruptcy resolution procedures at a time when the country’s economic troubles have led to a rise in distressed assets. “There is too much nonsense going on,” said a person close to one of the international investors.

Introduced to much fanfare in 2016, India’s overhauled bankruptcy code is designed to speed up resolutions, boost recovery rates and generally make it easier to do business in the country.

At the time it was introduced, bankruptcy resolutions in India were notoriously slow with an average recovery rate of just 25.7 cents to the dollar. Recovery rates have significantly improved but cases can still drag on for years, well beyond the stipulated resolution timeline.

“What puts global investors off is . . . the uncertainty in the resolution process,” said Pradip Shah, head of IndAsia, a corporate finance business, adding that the implementation of the bankruptcy code was “still a work in process”.

Piramal Group has written to the creditors warning it may pull out of the process entirely, Indian media reported.

Oaktree, Adani Group, Piramal Group and Hong Kong-based SC Lowy declined to comment. Los Angeles-based Oaktree is one of the world’s biggest distressed debt investors with $140bn in assets.

Global funds, including Oaktree and New York-based Apollo Global Management, have invested $1.5bn into distressed assets in India this year — 55 per cent higher than in all of 2019, according to research firm Venture Intelligence.

DHFL was one of the largest victims of a credit crunch that has squeezed India’s financial system in recent years, amassing billions of dollars in liabilities before the Reserve Bank of India ousted its board in 2019.

Its former chairman Kapil Wadhawan was arrested earlier this year over alleged money laundering. He has previously denied wrongdoing.

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