DB likely bought Rs 7,000 crore DHFL bonds at 70-80% discount

Overseas debt investors appear to be buying Indian distressed assets again after a prolonged pause. About Rs 7,000 crore of Dewan Housing Finance (DHFL NSE 2.88 %) bonds changed hands in the secondary market in the past few weeks, albeit at discounts of 70-80 per cent.

Deutsche Bank (DB) was the sole buyer of the bonds, top industry sources told ET, likely on behalf of clients overseas. Domestic mutual funds, bank treasuries and other financial institutions were the sellers of these series of bonds, about half of which had already matured but against which payments had not been received. Deutsche Bank declined to comment on the transactions.

Industry sources said that on Wednesday alone, the European bank bought about Rs 3,550 crore of debt in two large transactions, with the Yes Bank group reportedly the seller. This series of bonds is due to mature in June next year.

Deutsche Bank is said to have bought most of the DHFL debt owing to demand from overseas investors, including hedge funds focused on distressed assets. Oaktree and Cerberus Capital were also interested in buying those bonds, sources said. Individual investors could not be contacted immediately for comments.

“Overseas debts investors have renewed their interest in deep-discount bonds,” said Ajay Manglunia, managing director and head of fixed income, JM Financial. “This in turn is helping the distressed bond markets. Any buying interest points to the likelihood of revival of the company.”

Between July 1 and August 12, DHFL bonds worth Rs 6,790 crore changed hands. Payments against half these bonds, once rated triple-A, were due last year.

“The rationale is that all such debt obligations will be part of the final resolution plan, which could fetch money for those overseas investors betting on a dead horse,” said the head of an offshore fund house.

Earlier, in the first two weeks of July, Deutsche Bank purchased Rs 1,900 crore worth of DHFL bonds in just three days. L&T Mutual Fund and Edelweiss Asset Management were the two largest sellers of those bonds, sources said. Other funds such as Mirae Assets, Principal, HSBC and PGIM India sold DHFL paper at a 78 per cent discount.

A Reserve Bank of India-appointed administrator now runs the indebted mortgage lender that’s undergoing resolution. The committee of creditors (CoC) has extended the deadline for submission of bids for DHFL until September 16. More than 20 applicants are in the fray for the troubled home financier.

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