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National Asset Reconstruction Company Ltd (NARCL), or the government-backed bad bank to take over stressed assets of lenders, has emerged as the leading bidder in the auction for Srei Infrastructure Finance and Srei Equipment Finance. NARCL’s bid was the highest with a net present value (NPV) of Rs 5,555 crore, banking sources said.
The ‘challenge mechanism’ for the two Srei group companies was conducted on Tuesday by the committee of creditors. The process, consisting of five rounds, lasted about 10 hours. In the final round, there were just two bidders left: NARCL, and Authum (with an NPV of Rs 5,526 crore).
In the ‘challenge mechanism’ process, two parameters — upfront cash component and NPV of the committed amount under the financial proposal — are the key factors.
NARCL’s bid includes upfront cash of over Rs 3,000 crore and issuance of optionally convertible bonds worth Rs 6,000 crore, sources said.
Initially, the Varde Partners-Arena consortium, NARCL, and Authum Investment & Infrastructure were in the fray in the auction held on an electronic platform. The Varde-Arena consortium was out of the race after the third round after failing to raise bids over Rs 4,800 crore.
The total admitted claims of financial creditors against the Srei firms are Rs 32,750 crore. Financial lenders include State Bank of India, Punjab and Sind Bank, Axis Bank, HDFC Bank, Union Bank of India, IDBI Bank, UCO Bank, and Indian Overseas Bank.
The total value of resolution plans submitted by the applicants involves upfront cash payout and deferred payments by way of instruments like debentures. A timeline to clear the dues ranges between 3 and 7 years.
Bank executives said that as part of the further process, bidders would present legal documents and commercial plans together. There would be discussions with the lenders and applicants regarding key conditions in the plan. There would also be an assessment of beneficial ownership and related-party transactions of the bidders. The CoC may hold a meeting at the end of this week.
NARCL, where public sector banks hold a majority stake, has made it clear that it will not be able to offer government-backed guarantees.
Bank executives said NARCL is seen to have an edge in the process since the financial creditors to Srei are also owners of the ARC. There is little chance of any leakage when the resolution process takes shape. However, the other bidder is very much part of the process.
The resolution plans may be put for voting by the middle of this month after the feasibility and viability review of the proposals. The aim is to conclude the process by the end of the month. Later, the final plan would be put up before the National Company Law Tribunal and sent to the Reserve Bank of India, which would also do its due diligence. The aim is to have an effective resolution in the early part of next financial year (Q1FY24), bank executives added.
In October 2021, the RBI superseded the boards of Srei Infrastructure Finance and Srei Equipment Finance for insolvency proceedings due to governance concerns and payment defaults by them. It also appointed Rajneesh Sharma, former chief general manager of Bank of Baroda, the administrator of the Srei companies.
This is the second instance of resolution for a finance company under the Insolvency and Bankruptcy Code (IBC). Earlier, troubled mortgage lender DHFL went through a similar resolution process in FY22. Piramal Enterprises acquired DHFL by paying a consideration of over Rs 34,000 crore.
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