Reliance Capital resolution: Bidders upset over another auction plan

The plan of debt-ridden Reliance Capital’s lenders to conduct a second round of auction has hit a roadblock, as bidders are apparently not inclined to another round under the insolvency resolution process, according to sources.

Meanwhile, the apex court has listed the matter regarding the second auction for hearing in August.

The Supreme Court (SC) on March 20, 2023, admitted Torrent Investments’ — the highest bidder with ₹8,640 crore resolution plan — appeal against the lenders’ decision to hold another round of auction.

However, the court refused to stay the second round of the auction.

The insolvency process of RCAP has been going on for more than 450 days, which is much longer than the statutory time limit of 330 days.

According to the sources, Torrent has recently conveyed to the lenders that it is not willing to participate in the second round of auction. The other bidder — IndusInd International Holdings Ltd (IIHL) of Hinduja Group — has also told the lenders that it wants to withdraw its revised bid of ₹9,000 crore, which it had made after the auction process, and retain the old offer of ₹8,110 crore in the first round of auction.

This has upset the Committee of Creditors (CoC) plan to conduct a second round of auction with a base price of ₹9,500 crore to maximise the recovery from the RCAP resolution process.

In a related development, the sources said, a consortium of Cosmea Financial and Piramal, who had submitted binding bids for Reliance Capital in November, has written to the administrator, seeking a refund of their earnest money deposit (EMD) of ₹75 crore each, as both the companies do not wish to further participate in the ongoing resolution process.

While the CoC can go ahead with the extended challenge mechanism, permitting lenders to go ahead with a second round of auction, the outcome of the auction will be subject to the final decision of the Supreme Court.

With these latest developments, the sources said, Reliance Capital is staring at liquidation, if the lenders and bidders fail to reach a workable solution to end the stalemate.

As per the estimates, lenders would fetch ₹13,000 crore if they go for liquidation.

According to bankers involved in the process, Torrent last week suggested conducting a Swiss Challenge auction with their earlier bid of ₹8,640 crore as the threshold. If lenders agree to this, Torrent will have the first right to match any counteroffer from IIHL of Hinduja Group, one of the sources said.

The challenge mechanism may be considered a flawed one as serious bidders will be apprehensive of participating in such open-ended processes, the sources said, adding that since the Supreme Court will be examining the interpretation of Regulation 39 (1A) for the first time, the decision will have far-reaching implications on the future of IBC (Insolvency and Bankruptcy Code).

A lender involved in the process said that the Swiss Challenge or closed envelope bid process might go against the apex court direction that allowed the lenders to go ahead with an extended auction.

The dispute around RCAP’s bidding arose when Hindujas offered to pay ₹9,000 crore in upfront cash to the lenders, a day after the first round of auction concluded on December 21.

After this, lenders decided to go for one more round of auction to maximise their recovery from the RCAP assets.