Don't let cartel derail bidding process for bankrupt DHFL, says Adani

Forfeit deposits of bidders who are vitiating auction process, says Adani

Adani Group, in a communication to Dewan Housing Finance Corporation’s administrator, has said it has followed the due process in the auction and made the highest offer for the failed housing finance company so that the lenders get the highest value for the assets. 

Saying it is ready to put more money on the table, the group said some of the rival bidders were preventing value maximisation and their deposits should be forfeited for doing so.

A lending source said the group’s letter dated November 22 said its initial EoI (expression of interest) was only for the wholesale and SRA (slum redevelopment authority) assets of DHFL and it was hopeful that it, along with Piramal Group, would complete the deal (Piramal Group bid only for the retail assets). 

But when all the offers were opened on November 9, the group realised that the bids its rivals made did not reflect the value of the company. Hence, it bid for the entire company, which led to its rival bidders -- Piramal Group, US-based fund Oaktree, and Hong Kong’s SC Lowy -- complaining against Adani Group.

When contacted, an Adani Group spokesperson declined to comment. So did Piramal Group, Oaktree, and SC Lowy.

The letter pointed out a supposedly important flaw in the auction process when the administrator, while inviting fresh bids on November 17, put conditions on Adani Group’s bid even though the bidding document said an applicant could revise its offer.

Citing clauses of the bidding document, the group said its bid was in accordance with the process, no other rival bidder had any right to object to its bid, and the committee of creditors (CoC) and the administrator were duty-bound to take steps that resulted in value maximisation for all stakeholders.

When Adani Group informed the administrator on November 12 that it would throw in its hat for the entire company, the latter said it would entertain bids only for those assets which the candidates had originally put in their money for, thus scuttling Adani Group’s plans. This was despite the fact that the bidding document says a bidder can submit an offer at any time.

In the letter, the group said it further improved its unconditional offer, which included upfront cash of Rs 11,000 crore and another Rs 19,000 crore to be paid to the lenders with interest.

Further, it has said it could consider a further improvement when revised bids are called.

The group said some of the bidders had formed a “cartel” to restrict full and fair competition in the auction process. 

According to Clause 7.7 of the resolution document, the lenders and administrator are within their rights to forfeit the earnest money of such resolution applicants.

When contacted, a legal source said in Binani Cement acquisition, a late bid by Ultratech was not only accepted by the lenders, but it was even upheld by the Supreme Court. 

“The CoC should only strive to get maximum value for the lenders in a transparent process as part of its fiduciary duty,” said a Mumbai-based lawyer. This development comes at a time when Kapil Wadhawan, former promoter of DHFL, has filed an application in the National Company Law Tribunal, asking it to instruct the CoC to look into its offer. 

He too said the offers made by Piramal Group and Oaktree did not reflect the value of the company and they were trying to get the company virtually for free. Both bidders have offered the cash currently on DHFL’s books as their upfront cash for the company.

DHFL’s lenders, which claim Rs 95,000 crore against the company, want to close the process as early as possible. State Bank of India alone has an exposure of Rs 10,000 crore.

When the lenders sought an expression of interest for the company or/and for its assets in January this year, almost 24 companies responded. But of these only four came forward with offers.