Differences Emerge Between Lenders, Advisors Over Resolution Plan Options For RCL

Differences have emerged between lenders and process advisors of debt-ridden Reliance Capital over the resolution plan as the Committee of Creditors (CoC) meet on Tuesday to take a final decision.
     
With the binding bids coming in at an abysmally low value, the advisors and members of the CoC hold different opinions on what process they should adopt for the resolution. The choice is between liquidation and continuing with the ongoing bid process, sources said.
     
Deloitte, the process advisor of Reliance Capital Ltd (RCL) Administrator Y Nageshwar Rao, is of the opinion that the value of the bids is almost 70 per cent below the liquidation value of Rs 13,000 crore, sources said.
    
Should Reliance Capital go for liquidation, under section 6(A) of the Insolvency and Bankruptcy Code (IBC), the company would realise close to Rs 13,000 crore.
     
On the other hand, the advisor to the CoC, KPMG, is of the view that they should proceed with the ongoing process and bring finality to the resolution process by awarding the bid to the highest bidder.
     
The difference of opinion is not only between the two process advisors but among the members of the CoC also on the various options for resolution, sources said.
     
According to sources, a section of the CoC members has recommended a 'close cover option' for the bidding process. Under the process, the award will go to the highest bidder.
     
The other view within the CoC is that in order to maximize the realization, the e-auction process should be adopted, which is a more transparent and fair system for price discovery and is a more preferred and prevalent process in India.
     
According to the sources, the key to resolving the differences lies with the LIC and EPFO, who collectively control 35 per cent of voting rights in the CoC.
     
LIC and EPFO have a debt of Rs 3,400 crore and Rs 2,500 crore, respectively, in the debt-ridden RCL.
     
The decision by LIC and EPFO will play a pivotal role in deciding the final resolution process, sources said, adding, they have to decide whether they want the resolution or liquidation, and what option they want to choose in case they wish to go ahead with the resolution process.
     
As a result, the CoC's meeting of Tuesday is quite significant from the point of view that all these different opinions and options will be discussed amongst lenders to arrive at a solution that will be acceptable to all the stakeholders, sources said.
     
Reliance Capital received four binding bids on November 28, which was the last date for submitting the bids.
     
The highest bid is submitted by Cosmea Financial and Piramal combined, with a bid value of Rs 5,231 crore. It was followed by Hinduja with a bid value of Rs 5,060 crore. The size of Torrent and Oaktree bids is Rs 4,500 crore and Rs 4,200 crore respectively.
     
On the other hand, the valuation reports by the Independent valuers have pegged the liquidation value of Reliance Capital Ltd (RCL) at Rs 12,500  crore and Rs 13,200 crore respectively.
     
The Liquidation Value (LV) of Reliance Capital estimated by these two independent valuers is almost 70 per cent higher than the bids received by the Administrator.
     
RCL offered two options to the bidders. Under the first option, companies could bid for Reliance Capital Ltd, including its eight subsidiaries or clusters. The second option gave the bidders the freedom to bid for the subsidiaries individually or in combination.
     
RCL has eight businesses that are on the block. These include general insurance, life insurance, health insurance, securities business and asset reconstruction, among others.
     
The Reserve Bank of India (RBI) on November 29 last year 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 this year, the RBI-appointed administrator invited expressions of interest for the sale of Reliance Capital.