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The committee of creditors (CoC) of Reliance Capital (RCap) has increased the base price for the e-auction of the company to Rs 6,500 crore, thus upsetting the calculations of potential bidders.
In the CoC meeting held on Tuesday, the base price was raised to Rs 6,500 crore, taking into account the high valuation of its two profit-making insurance assets, said a source close to the development. According to the earlier proposal, the base bid value was estimated at Rs 5,231 crore — the offer by Cosmea Financial Holding and Piramal consortium.
According to the new rules, the bidders in the first and second rounds will have to increase the bid value by at least Rs 1,000 crore each. This means the first bid has to be a minimum of Rs 7,500 crore and the second Rs 8,500 crore. Subsequently, in the third and fourth rounds, the bid amount has to go up by Rs 500 crore and Rs 250 crore, respectively.
The auction will take place on two days from December 22 instead of Monday, said a source close to the development.
“This (new base price) is certainly far higher than what potential bidders had offered. There are likely to be some dropouts in the auction,” said a banker close to the development.
This is the first time that an e-auction of this scale will take place for a debt resolution under the Insolvency and Bankruptcy Code (IBC) of 2016.
Reliance Capital was sent for debt resolution in November last year after it defaulted to bank dues worth Rs 24,000 crore.
The decision in favour of an e-auction was taken at the behest of the Life Insurance Corporation and the Employee Provident Fund Organisation (EPFO), who control 35 per cent of the voting in the committee of creditors. Both lenders have voted against the liquidation and initiated an electronic auction of the assets.
Reliance Capital had received four binding bids at the company level with the highest bid from Cosmea Financial and Piramal group combined.
In Cosmea-Piramal bid, the liability of Piramal group is limited to Reliance General Insurance only.
Hinduja had offered Rs 5,060 crore, while Torrent group had offered Rs 4,500 crore. American financial powerhouse, Oaktree had offered Rs 4,200 crore for the entire company.
But valuation reports by independent valuers Duff & Phelps and RBSA Advisors, had pegged the liquidation value of Reliance Capital at Rs 12,500 crore and Rs 13,200 crore, respectively. The liquidation value of Reliance Capital is far higher than the value of the bids received.
According to Duff and Phelps, the liquidation value of profit-making Reliance General Insurance alone is worth Rs 7,000 crore, and Reliance Nippon Life Insurance business is Rs 4,000 crore.
Reliance Capital owns 100 per cent stake in Reliance General Insurance and 51 per cent stake in Reliance Nippon Life Insurance Corporation.
Most bidders are interested in the two insurance firms. RBSA Advisors has pegged the liquidation value of Reliance General Insurance and Reliance Life Insurance at Rs 7,500 crores and Rs 4,300 crore, respectively.
Fifty-five companies, including top conglomerates such as Adani and Tata, had submitted expressions of interests (EoIs) for the company in February this year. But of these, only four made binding offers. No separate offers were received for the profit-making insurance companies.
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