In a bizarre move, the committee of Creditors of Reliance Capital (RCAP), in its meeting on Tuesday, has set new rules for the e-auction process, which has shocked all the bidders and put a question mark on the success of the proposed auction process.
Rejecting all the earlier bids, the RCAP COC has set a new base price for the auction which is almost Rs 1,500 crore higher than the earlier base price.
As per the earlier proposal, the bid value of Rs 5,231 crore quoted by the Cosmea and Piramal consortium was the base value or starting price for the proposed e-auction, but in today’s meeting the lenders have upped this to an unrealistic level of Rs 6,500 crore.
The steep increase in the base price of e-auction has rattled all the bidders.
According to the new rules, the bidders, in the first and second round, will have to increase the bid value by minimum Rs 1,000 crore each. This means the first bid has to be minimum Rs 7,500 crore and the second Rs 8,500 crore.
Subsequently, in the third and fourth round, the bid amount has to go up by Rs 500 crore and Rs 250 crore, respectively.
The auction will now take place on December 22 and December 23, instead of an earlier proposal of holding it on December 19.
Reacting to the unrealistic base price set by the lenders, the bidders are of the firm belief that the auction process is bound to fail.
Reliance Capital had received 4 binding bids at the company level. The highest bid of Rs 5,231 crore was submitted by a consortium of Cosmea Financial and Piramal.
Hinduja, with a bid value of Rs 5,060 crore was the second-highest bidder for RCAP. The bid size of the other two bidders, Torrent and Oaktree is Rs 4,500 crore and Rs 4,200 crore, respectively.
In the Cosmea- Piramal bid, the liability of Piramal is limited to Reliance General Insurance only.
On the other hand, the valuation reports by the Independent valuers – Duff & Phelps and RBSA, have 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 almost 70 per cent higher than the value of the bids received.
According to Duff and Phelps, the liquidation value of Reliance General Insurance is Rs 7,000 crore, and Reliance Nippon Life Insurance business is Rs 4,000 crore.
RBSA has pegged the liquidation value of Reliance General Insurance and Reliance Life Insurance at Rs 7,500 crore and Rs 4,300 crore, respectively.
Though no separate bids have come for the two insurance arms of Reliance Capital.