The race to acquire bankrupt Dewan Housing Finance Corporation Limited (NSEI: DHFL) has intensified with top bidders Oaktree Capital Management, L.P. and Piramal Enterprises Limited (BSE:500302) offering to sweeten their bids as the sale process entered final negotiations, two people directly aware of the developments said. The bidders agreed to improve their proposals after the committee of creditors (CoC) to DHFL found the offers of Oaktree and Piramal in the fourth round of bidding equally competitive, the people said on condition of anonymity. The developments demonstrate the fierce competition between the two suitors to take over the home financier amid a significant recovery in the quality of its assets from the initial months of the pandemic and a wider revival in the non-banking space, helped by falling credit costs.

In the latest meeting with the lenders on 18 December, Piramal group proposed to invest an additional INR 40,000 million to INR 50,000 million in DHFL if it wins the bid, said one of the two people cited above, who is also a member of the lenders' panel. Piramal had bid INR 322,500 million in the fourth round, slightly lower than Oaktree's bid of INR 327,000 million. The attractiveness of a bid is, however, judged on how much money they offer lenders' upfront and other criteria.

Oaktree has also agreed to ease one of the key conditions in its bid. It has offered to specify the period of the holdback of INR 15,000 million for meeting potential contingencies arising from DHFL's life insurance business, the person said. In its offer, Oaktree had mentioned a clause, which states that the sum will be kept as a holdback by Oaktree for an unspecified period from its upfront payment offer worth INR 117,000 million.

The firm said that the money will be used to pay for potential contingencies arising from DHFL's life insurance business. "The lenders are not satisfied with this conditional proposal as it gives rise to several uncertainties. The CoC has asked Oaktree to specify the period for which the holdback clause will be effective.

And, Oaktree has agreed to specify the duration of holdback," the first person said. The lenders will put the two offers to vote on December 23, 200 to select the new owner of DHFL, which will also be forwarded to NCLT for approval. Piramal's offer to bolster its investment in the acquired firm comes after CoC asked how it plans to sustain DHFL's lending business if the cash in the books is used to pay the creditors.

"Around INR 90,000 million to INR 95,000 million is sitting as cash in DHFL's book, but that does not belong to any bidder; it belongs to lender. If that cash is meant to be repaid to lenders, there will be hardly anything left in the book. We have asked Piramal that to sustain and improve the business of DHFL, they should bring in at least 15% to 20% separately to ensure there is enough working capital for sustaining DHFL's growth post the acquisition," said the second person, who is also a member of the CoC.

"To this, Piramal has offered to infuse INR 40,000 million to INR 50,000 million of fresh capital into DHFL". Piramal has also been asked how the credit rating of the firm (the entity formed after Piramal merges its financial services unit with DHFL) can be improved so that the debt papers proposed to be sold by DHFL to the lenders post the proposed merger have enough market value. Piramal has proposed in its bid that the merged entity will sell non-convertible debentures (NCDs) worth INR 195,000 million at a coupon of 6.75% to the lenders, if the group wins the DHFL auction.

Since the CoC is also not certain about the structure that will be deployed by Oaktree to hold the insurance arm of DHFL, after a meeting on December 18, 2020 Oaktree has agreed to carve out a new structure and provide clarity on this matter. The FDI limit in insurance is 49%, and Prudential Holdings already owns 49% in DHFL's life insurance business. A Hong Kong based spokesperson from Oaktree Capital Management declined to comment.

A Piramal spokesperson also declined to comment.