Gujarat-based NBFC Raj Radhe Finance has offered Rs 130 crore to take over the debt of EPC company Consolidated Construction Consortium (CCC) topping National Asset Reconstruction Co Ltd’s (NARCL) Rs 100-crore offer, two people familiar with the bid said.
Raj Radhe’s offer was in response to a Swiss challenge called by banks after the anchor bid submitted by NARCL last month. This is the third offer received by banks in response to NARCL bids. It remains to be seen whether the government-backed bad loan aggregator uses its option to either match or beat its challenger.
Earlier this month, ET reported that the NARCL had declined to match Phoenix ARC Pvt Ltd’s Rs 405 crore bid for the bankrupt steel maker Mittal Corp, clearing the way for the Kotak Mahindra Bank backed ARC to take over the debt-laden company.
Just like Phoenix’s offer, Raj Radhe’s offer is on a full cash basis in contrast with the 85% security receipts (SRs) which would have been issued by NARCL to be liquidated and paid to banks only after recovery is made.
“The bidding closed last week and we have an offer. Now the ball is in NARCL’s court,” said a person familiar with the process. Raj Radhe could not be immediately reached.
To be sure, even the enhanced offer from Raj Radhe amounts to a 5% recovery for lenders on total outstanding dues of Rs 2,623 crore. It is even lower than the promoter’s offer for settlement at Rs 195 crore, which had envisaged 7.5% recovery for banks.
“It’s an EPC company which does not have any real assets but there could be future claims and awards which could yield some returns,” said a second person aware of the process.
Some bankers have expressed concerns about the low NARCL bids which can be easily topped by private ARCs and NBFCs and which could lead to promoters taking back control of the companies from the back door.
“Nothing stops an NBFC from bidding for a company and palming it off to promoters because unlike ARCs, the norms for NBFCs are less stringent. Even section 29A does not apply to them. So they can buy distressed debt under SARFAESI (Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act) which gives them power on a par with banks, and sell it to a third party which could be a promoter also. Only thing is they cannot sell it before six months,” said a senior executive from an asset reconstruction company.
Section 29 A of the insolvency and bankruptcy code (IBC) disallows promoters declared insolvent, wilful defaulters or companies which have been declared as a non performing asset (NPA) by banks for at least one year from bidding for that asset.
Some bankers said the low bids from NARCL have defeated the purpose of the formation of a national bad loan aggregator and opened up a possibility for manipulation as debt is now consolidated.
“There is a lot of money spent on setting up the NARCL. Many consultants have been roped in at high fees but banks are not benefitting which is ultimately the loss for depositors. If we continue to see such abysmal recovery rates, why did banks spend so much money to start this new company? It would have been better to continue the NCLT process,” said a senior banker.
Expectations are that by the end of this month the NARCL would have bid to take over at least a dozen NPAs.
