The new evaluation criteria laid down by lenders for stressed assets have put bidders in the bind as more weight is being given to upfront cash to be paid to the banks with the bid offer instead of giving more weight to equity investments to be made in the stressed company. Bidders say apart from taking over part of loans and making investments in the stressed asset, the upfront cash to be paid to the banks will not make it feasible to bid for the large assets. “The upfront cash to be put in for the stressed asset will go the banks instead of investments in the stressed assets. By putting more weight to the upfront cash, the bidders are discouraged from making investments into the company which would require funds for a turnaround,” said a source close to the bidder. These criteria also mean bidders will compete with each other to give more cash to the banks instead of investing in the asset. The lenders are expecting aggressive bids for Bhushan Steel, Bhushan Power and Steel, Essar Steel, Electrosteel Steels from Tata Steel, JSW Steel, ArcelorMittal and Vedanta. The evaluation criteria, which have been sent to the bidders this week, have sent the bidders and their advisors back to the drawing board. “We have to start bidding plans from the scratch as banks want more cash instead of investing in the company,” said one of the bidders. The bidding has been delayed till next year as the lenders wanted to come out with similar criteria for all the companies. The lenders decided to come up with a uniform evaluation matrix to avoid litigation. Earlier, the process was after the acceptance of EOIs, the committee of creditors would come up with the evaluation criteria. But, last week it was decided that for 12 firms in the Reserve Bank of India (RBI)-mandated insolvency process, there would be a uniform evaluation matrix. There are seven criteria in the matrix, divided into qualitative and quantitative. In the quantitative part, maximum weight is given to the upfront cash. The qualitative part includes, turnaround experience, past track record, whether willful defaulter or not. According to industry analysts, the upfront cash component restricts the bidding to large players for assets the size of Bhushan Steel, Bhushan Power and Steel or Essar Steel. However, large domestic players such as the Tatas and JSW Steel have already made commitments to brownfield expansion. Plus, they have to service their own debt.
Therefore, while most of them are tying up with private equity or have made funding arrangements, putting upfront cash for a large asset may be tricky. Lenders are expected to take a haircut on the loans of the stressed companies of as high 60-70 per cent with the winning bidder agreeing to take over the rest of the loan. In June, the RBI identified 12 companies, which was sent to the National Company Law Tribunal (NCLT) for resolution under the Insolvency and Bankruptcy Act. These companies on a combined basis owe Rs 2,53,000 crore of debt to banks as on March this year. The RBI’s second list of 28 companies were also being sent to the NCLT barring four companies in which the resolution plan is already approved by the banks.