Cosmea-Piramal consortium pulls out of Reliance Capital's bidding

Cites unreasonable new base price of Rs 6,500 cr; 'previous offer still valid'

Just a day before the auction to sell Reliance Capital’s assets begins, the Cosmea Financial Holdings-Piramal Group combine has pulled out of the bidding process, citing “unreasonable” new base price of Rs 6,500 crore to participate in the auction.

The Cosmea-Piramal combine had submitted the highest binding bid for Reliance Capital, but lenders had decided to seek better offers via an electronic auction.

According to Cosmea-Piramal officials, the contours of the bidding process have been significantly altered, with the base bid going up by Rs 1,300 crore over and above its highest bid of Rs 5,330 crore, to start participating in the process.

With the exit of Cosmea-Piramal, there are only three players left in the race — Hinduja, Torrent, and Oaktree. Besides, bidders said, the subsequent rise in the auction process for the second and third rounds had also been set at a very steep level of Rs 1,000 crore each.

The bidder was also unhappy with another Rs 500 crore for round four and Rs 250 crore for every subsequent round. This would mean that the required bids would need to be at least Rs 7,500 crore, Rs 8,500 crore, Rs 9,000 crore, and Rs 9,250 crore, respectively. This, Cosmea-Piramal said, was not only unreasonably high and arbitrary but also unviable.

The bidders are also of the opinion that by not declaring the highest bidder and not providing the ranking of the bidders after every round, the auction process is contrary to the e-auction conducted by the Government of India and the state governments in spectrum, solar, and wind power auctions.

A Piramal group source said their/Cosmea's earlier offer of Rs 5,231  crore is still valid and legally binding.

Cosmea-Piramal, with a total bid value of Rs 5,231 crore, was the highest bidder for Reliance Capital for the entire company. The offer included an upfront payment of Rs 4,250 crore. The net present value (NPV) of Cosmea-Piramal offer was Rs 5,000 crore. In this consortium, the liability of Piramal is limited only to Reliance General Insurance. 

On the other hand, the Hinduja bid of Rs 5,060 crore, including an upfront payment of Rs 4,100 crore, was the second highest bid. The NPV of Hinduja’s offer was Rs 4,800 crore.

Torrent and Oaktree had quoted Rs 4,500 crore and Rs 4,200 crore, respectively. They had offered an upfront payment of Rs 1,100 crore and Rs 1,000 crore, respectively. The NPV of Torrent’s resolution plan was Rs 4,200 crore and Oaktree’s plan was Rs 2,600 crore. 

Reliance Capital was sent for debt resolution in November last year after it defaulted to bank dues worth Rs 24,000 crore. The decision in favour of an e-auction was taken at the behest of the Life Insurance Corporation and the Employee Provident Fund Organisation (EPFO), who control 35 per cent of the voting in the committee of creditors. 

Both lenders have voted against the liquidation and initiated an electronic auction of the assets.

Reliance Capital had received four binding bids at the company level with the highest bid from Cosmea Financial and Piramal group combined. In the Cosmea-Piramal bid, the liability of Piramal group is limited to Reliance General Insurance only.

Valuation reports by independent valuers Duff & Phelps and RBSA Advisors, had 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 far higher than the value of the bids received.

According to Duff and Phelps, the liquidation value of profit-making Reliance General Insurance alone is worth Rs 7,000 crore, and Reliance Nippon Life Insurance business is Rs 4,000 crore.

PAIN POINTS

• Bidders said the subsequent rise in the auction process for the second and third rounds had been set at a very steep level of Rs 1,000 crore each
• Cosmea-Piramal was unhappy with another Rs 500 crore for round four and Rs 250 crore for every subsequent round 
• The bidders said that by not providing the ranking of bidders after every round, the auction process would be contrary to the Centre and states’ e-auction of spectrum, solar, and wind power 
• Three players left in the race — Hinduja, Torrent, and Oaktree