RCap threshold bid amount pegged at Rs 6,500 cr in 1st round

Mumbai: Reliance Capital's administrator informed resolution applicants that they will need to offer at least ₹6,500 crore - pegged as the threshold bid amount - to participate in the auction for the company, said people aware of the development.

The Piramal-Cosmea combine, the Hinduja Group, Torrent Investment and Oaktree Capital are expected to take part in the auction of Anil Ambani's erstwhile core investment company. The auction is scheduled for December 21 in Mumbai.

The administrator had received the highest offer of ₹5,231 crore as part of a staggered payment plan from the Piramal Enterprises-Cosmea Financial Holdings team on November 28. This offer, however, was about 60% below the liquidation value of ₹12,500-13,000 crore, prompting lenders to hold an auction among bidders to get improved offers.

Challenge Mechanism
The threshold level of ₹6,500 crore fixed for the first round would imply that Piramal-Cosmea will have to improve its offer by ₹1,269 crore to be in the fray. The Hinduja Group, which offered ₹5,060 crore, will need to bump it up by ₹1,500 crore. Torrent Investments will need to add Rs 2,000 crore to its ₹4,500 crore staggered payment offer. Oaktree Capital, the fourth bidder, had offered ₹4,200 crore.

In a note on the challenge mechanism process sent to all bidders last week, the administrator said that after making a bid at the threshold level, the resolution applicant could improve the offer in multiples of ₹10 crore.

However, the note also stated that the threshold bid amount (TBA) will increase each successive round. The TBA will start at ₹6,500 crore in the first round and increase by ₹1,000 crore in the second and third rounds each, and it will go up by ₹500 crore and ₹250 crore in the fourth and the fifth rounds, respectively. Effectively, the TBA for the second round will be ₹7,500 crore, ₹8,500 crore for the third, ₹9,000 crore for fourth and ₹9,250 crore for the fifth round.

The administrator informed bidders that at the end of each round, the net present value (NPV) of the highest bidder in the challenge auction will be disclosed to all participants. The note, however, was silent on whether the administrator would reveal the highest bidder's name.

The challenge mechanism will conclude if the administrator does not receive a higher bid for three consecutive rounds.

In each successive round, bidders that want to continue will have to match or exceed the offer by the highest bidder of the previous round.

Lenders say it is imperative to get improved offers, failing which they may have to consider liquidating Reliance Capital, a situation they want to avoid. At the same time, no lender will approve a plan that is sharply below the liquidation value, they said.

Resolution applicants have conveyed to lenders that they don't have much time to finalise strategy and arrange funds for the challenge auction, said people with knowledge of the matter.

Life Insurance Corporation of India and Yes Bank, which have the biggest exposure to the core investment company, are driving the resolution process, said the people cited above. Reliance Capital houses about 20 finance companies ranging from insurance to stock broking.