Reliance Cap lenders to run 2nd round of auction for value maximization; decision on Monday

The battle between Torrent and Hinduja Group for the acquisition of debt-ridden Reliance Capital may take a new turn as the lenders are considering running a second round of ‘Challenge Mechanism‘ or e-auction for the bidders, sources said. The Committee of Creditors (CoC) will meet on Monday to decide on the second round of auction as it is expecting bids upwards of Rs 10,000 crore from this.

The first round of auction witnessed both Hindujas and Torrent trying to outbid each other by continuously sweetening their bids and offering more upfront cash, even after the auction got over, sources said.

The second Challenge Mechanism round under Insolvency and Bankruptcy Code (IBC) will be conducted with a reserve price of Rs 9,500 crore, as against the minimum threshold value of Rs 6,500 crore in the first round that concluded on December 21, 2022, as per the sources.

The second round of Challenge Mechanism is also likely to have a threshold of minimum cash upfront payment of around Rs 8,000 crore for the bidders, they said, adding, this will give Torrent an advantage of Rs 640 crore, as the company has already made an all-cash offer of Rs 8,640 crore.

According to sources, the decision to run a second round of Challenge Mechanism has been taken as the commercial viability of the Torrent and Hinduja bids are not acceptable to the CoC.

The bids submitted by Torrent Group (Rs 8,640 crore ) and IndusInd International Holdings Ltd.(IIHL) of Hinduja Group (Rs 8,110 crore) are far below the liquidation value and fair value fixed by the independent valuers, sources said.

The liquidation value of Reliance Capital is pegged at around Rs 13,000 crore and fair value is Rs 17,000 crore. The new Challenge Mechanism round is likely to be held around January 20, 2023. The current deadline to complete the resolution process of Reliance Capital is January 31, 2023.
The Reserve Bank of India (RBI) had on November 29, 2021 superseded the board of RCL in view of payment defaults and serious governance issues.

The RBI appointed Nageswara Rao Y as the administrator in relation to the Corporate Insolvency Resolution Process (CIRP) of the firm.

Reliance Capital is the third large non-banking financial company (NBFC) against which the central bank has initiated bankruptcy proceedings under the IBC. The other two were Srei Group NBFC and Dewan Housing Finance Corporation (DHFL).

The RBI subsequently filed an application for initiation of CIRP against the company at the Mumbai bench of the National Company Law Tribunal (NCLT). In February last year, the RBI-appointed administrator had invited expressions of interest for the sale of Reliance Capital.