Lenders to thermal power companies facing corporate insolvency have invited three resolution applicants – Adani Power, Reliance Industries and the Power Finance Corporation-REC team- to bid at the auction.
Both houses of the company conveyed to Lanco a professional resolution that the proposed ‘challenge mechanism’ violates the rules governing the Insolvency and Bankruptcy Code (IBC) as there is no provision for it in the relevant legislation, said one of the people quoted above.
The so-called ‘challenge mechanism’ is an auction process that involves several rounds of bidding among applicants until the highest bidder is identified. This is supposed to be the first time that two of the country’s biggest conglomerates – Mukesh Ambani-owned Reliance and Gautam Adani’s Adani Power – will directly compete for an asset.
PFC-REC Owns 41% of Unit Debt
Spokespersons at Adani Power and Reliance Industries, which are headed by two of Asia’s richest billionaires, did not respond to ET’s request for comment.
The third bidder -Team PFC-REC -offered Rs 3,020 crore as upfront cash payment in Wednesday’s auction, the people said. .
In the 48th meeting of the committee of creditors (CoC) held in October, lenders decided to hold a closing bid process. As a result, all three applicants for the resolution – Adani, Reliance and the PFE-REC team – were asked to submit their respective enhanced offers to the first one made in August. According to the closing bid process, the highest bid among the three applicants will be declared H1 (highest bidder).
In the second round (of closing bids) Adani Power gave the highest bid of Rs,950 crore in upfront payments.
Reliance offered to pay Rs 2,103 crore upfront, while PFC-REC offered Rs 5,521 crore, of which Rs 4,149 crore was deferred for 22 years.
At the 51st CoC meeting, held after the increased offer disclosed to member banks, lenders passed a resolution to hold a ‘challenge mechanism’ auction. The change was introduced at the final stage of the resolution process by the CoC, which was opposed by the two business houses, said the person cited above.
“First, a new process (challenge mechanism) was introduced after initially passing the resolution that the ‘close-bid’ process will identify the highest bidder. Second, there is no auction provision under the IBC,” said the same person. “It is possible that either the business house or one of the two can find a legal remedy.” Legal experts said the joint PFC-REC has a conflict of interest as it is the resolution applicant and the largest debt holder. According to the IBC, at least 66% of the lenders (by value of debt) must agree to approve any resolution. That means a single lender with 34% or more can block the resolution.
Saurabh Kumar Tikmani, a resolution professional, backed by KPMG, has claimed Rs 14,632 crore of claims from 17 lenders.
Lanco operates a coal-based thermal power project on the Korba-Champa state highway in Chhattisgarh. It has already commissioned the first phase, which consists of two units of 300 megawatts (MW) each supplying electricity to Madhya Pradesh, Haryana and the home state.