RCapital lenders meet ends in stalemate over key challenge mechanism issue

CoC decides that all bidders, while submitting their resolution plans, will agree in writing to participate in the Challenge Mechanism in whatever form it is implemented by the lenders later

The Committee of Creditors (CoC) of Reliance Capital failed to resolve a key issue on the challenge mechanism process to the winning bid which is threatening to delay the debt resolution of the company.

The committee of creditors, which met today, recommended the "Black Box" approach, which means that the modalities of the Challenge Mechanism process will be decided by them but will be communicated to the bidders at a later stage.

Under this, bidders will have to submit their resolution plan with no certainty on how this process will work and impact the bidding process after they submit their binding bid. The binding bids are expected by month-end.

The CoC decided on Friday that all bidders, while submitting their resolution plan, will have to agree in writing to participate in the Challenge Mechanism in whatever form it is implemented by the lenders later.

In the meeting, the adviser to the lenders, KPMG, supported an ascending e-auction process as has been recently done by the government in the 5G based spectrum auction, but the lenders failed to reach a consensus.

KPMG and Luthra & Luthra, the legal advisor to the CoC, had earlier proposed multiple options on the challenge mechanism, including the Swiss challenge process under which the highest bidder is offered the Right of First Refusal (RoFR). The top bid is declared and then other parties are asked to match or better it.

Another option is negotiation by the CoC with each bidder separately. The third option on the table was to have an electronic auction  under which each bidder can participate to declare the highest bidder.

Fifty five top global and local conglomerates have shown interest to bid for Reliance Capital and its subsidiaries so far, according to a filing made by Reliance Capital to the stock exchanges on October 20. But of these, only few are keen to make a binding bid for Reliance Capital’s profitable insurance subsidiaries.

  

Switzerland’s Zurich Insurance Company, Nippon Life Insurance Company of Japan and local conglomerates such as the Aditya Birla Group, the Piramal group, and Torrent group are expected to make their binding offers by November end.

Bank officials say they want to complete Reliance Capital’s sale process before the ongoing financial year ends in March next year.