Srei lenders to hold challenge auction Tuesday to select winner

Lenders to the twin Kolkata-based Srei companies will hold a challenge auction next Tuesday (January 3) to identify the highest bidder among the three contenders, Arena Investors-Varde Partners, National Asset Reconstruction Company (NARCL), and Authum Investment & Infrastructure, two people aware of the development told ET.

Lenders have set a threshold value of ₹3,000 crore as upfront payment - the minimum a resolution applicant must pay to be in the fray, said a note issued by lenders to the bidders.

In the second and third rounds, the interested buyers must increase their bids by at least ₹200 crore, while in the fourth and fifth rounds, the offers must be improved by at least ₹100 crore (incremental value 2), the note said.


The administrator at the twin companies did not respond to ET's request for comments.

Arena Varde had offered around ₹14,000 crore, NARCL ₹13,600 crore, while Authum had sought to pay about ₹15,000 crore on December 2, said a lender. All three offers were a combination of upfront cash - between ₹2,500 and ₹2,800 crore - and deferred payments that constituted the remainder.

The administrator of Srei Infrastructure Finance and Srei Equipment Finance, both undergoing corporate insolvency, has admitted ₹32,750 crore in claims from financial creditors.

CoC to Have Right to Negotiate
At the auction, applicants must submit bids under two subheads - upfront cash recovery and committed instruments. Both will be used to compute the net present value (NPV) of the offers by the lenders and their advisors.

The committed instruments could include non-convertible bonds and term loans, and the upfront payment could include the cash lying in the companies, amounting to about Rs 2,100 crore.

The bidder with the highest NPV, arrived at after discounting the future cash flows, will be considered the 'highest evaluated financial proposal,' lenders informed the participants.

However, the note of the committee of creditors (CoC) to applicants indicates that lenders would have the right to negotiate for an improved offer even with those bidders that did submit a bid.

"The CoC shall have the right to negotiate on the financial proposals, including the terms of the instruments, the non-committed instruments and the upside proposed therein, with one or more eligible resolution applications, at any stage, in their sole discretion, to achieve the successful insolvency resolution of the corporate debtors and maximize the value for all stakeholders," said the note.

The auction will end after five rounds, or if none of the applicants submit a bid in a round. The administrator will inform the name of the bidders' highest NPV to all other applicants. All participating bidders must submit the financial proposal within 24 hours of concluding the auction.

Lenders such as Canara Bank, Punjab National and State Bank of India, with a combined 58% debt exposure, voted in favour of a resolution to hold a challenge mechanism. Two lenders - UCO Bank and Bank of India - with 6.55% debt, voted against this resolution.

EY and AZB & Partners are process advisors and legal advisors, respectively, for the administrator. SBI Caps and Shardul Mangaldas Amarchand are commercial advisors and legal advisors for the CoC.