VIPL Swiss Challenge: Restrictive conditions for bidders throttle value discovery, favouring anchor bidder

Mumbai: The Swiss Challenge process run by the lenders of Vidarbha Industries Power Ltd. (VIPL)  has run into a controversy due to certain conditions laid down in the EOI document for the potential bidders. The bidders have called these conditions as restrictive in nature, and at the same time favouring the anchor bidder.

According to a potential bidder, these onerous custom made conditions by lenders are aimed to favour the anchor bidder, i.e., CFM ARC and Swiss Challenge process is just an eyewash.

The bidders have alleged that the restrictive conditions will throttle the competitive value discovery of the VIPL debt as they limit the participation from potential bidders in the Swiss Challenge process. The purpose of the Swiss Challenge is to maximise value for the lenders, while the design of the VIPL Swiss Challenge is contrary to this basic principle.

The EOI is discriminatory for all potential bidders vis a vis CFM ARC.

The bidders have also claimed that the VIPL EOI document does not even comply with the provisions related to the Swiss Challenge process mentioned in the Reserve Bank of India (Transfer of Loan Exposures) Directions, 2021 as it does not specify the base bid number and minimum mark-up, as required under the circular

Elaborating on the restrictive conditions of the EOI, a bidder said that an additional Annexure called as ‘Annexure III’ has been introduced in the EOI document, imposing harsh conditions or seeking undertakings like:

a) The bidder and any person investing in the bidder for the purpose of funding the consideration set out in its bid/offer, is not disqualified by section 29A of the Code and rules and regulations framed thereunder from submitting a bid to acquire the debt of VIPL under the Swiss challenge process.

b) The Bidder shall submit the source of funds along with the bid submitted by the bidder to the lenders

c) The bidder is required to give an undertaking that neither the bidder nor any other person acting jointly or in concert with is an undischarged insolvent or a wilful defaulter, at the time of submission of the bid.

d) A bidder will be barred from participating in the Swiss Challenge process if it’s account or an account of a corporate debtor under the management or control of such person or of whom such person is a promoter, have been classified as non-performing asset in accordance with the guidelines of the Reserve Bank of India.

e) A person who has been disqualified to act as a director under the Companies Act or prohibited by the SEBI from trading in securities or accessing the securities markets is also barred from participating in the Swiss Challenge process of VIPL.

f) The EOI conditions also restrict the participation in the Swiss Challenge process if a person has been a promoter or in the management or control of a corporate debtor in which a preferential transaction, undervalued transaction, extortionate credit transaction or fraudulent transaction has taken place and in respect of which an order has been made by the Adjudicating Authority under the Code.

g) If a person/promoter has executed a guarantee in favour of a creditor in respect of a corporate debtor against which an application for insolvency resolution made by such creditor has been admitted under the Code and such guarantee has been invoked by the creditor and remains unpaid in full or part, is also not allowed to bid for the VIPL debt under the Swiss Challenge process.

Notably, the lenders of Vidarbha Industries Power Ltd. (VIPL), a subsidiary of Reliance Power Ltd., are conducting the Swiss Challenge process for the sale of company’s outstanding debt.

The lead banker, Axis Bank, has issued an invitation for EOI for the sale of VIPL’s outstanding debt.

The detailed invitation document for submission of EOI for the sale/assignment of VIPL’s outstanding debt does not even disclose the basic mandatory information to the potential bidders for enabling them to make a counter bid for the VIPL debt.

The EOI document does not mention the name of the anchor bidder. The document, without disclosing the name of the bidder, simply says that a binding bid has been received from an asset reconstruction company, which is the anchor bidder.

The EOI document is also silent on the value of the anchor bid.

The EOI document has no information on how the proposed Swiss Challenge process will be run and till what level the anchor bidder has the right of first refusal.

As per the regulations, all the lenders are required to make a disclosure of their exposure in the VIPL, on their respective websites, but even this information is not available to the potential bidders.

Strangely, the anchor bidder, i.e., CFM ARC had offered Rs 1,220 crore as against the promoter company, Reliance Power’s Rs 1,260 crore OTS offer, for the VIPL debt.

CFM ARC is among the four Asset Reconstruction Companies who have been issued show cause notices by the RBI post its special audit, following the Income Tax raids on the companies.

–IANS