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    Adani, Reliance skip Lanco unit auction citing IBC rule

    Synopsis

    Lenders to the thermal power company undergoing corporate insolvency had invited three resolution applicants - Adani Power, Reliance Industries and Power Finance Corporation-REC team- to bid at the auction.

    Lenders defer auction for Lanco AmarkantakiStock
    Two of India's biggest conglomerates - the Adani Group and Reliance Industries - did not participate in Wednesday's auction for insolvent Lanco Amarkantak Power, citing a violation in the sale process, two people aware of the development told ET.

    Lenders to the thermal power company undergoing corporate insolvency had invited three resolution applicants - Adani Power, Reliance Industries and Power Finance Corporation-REC team- to bid at the auction.

    Both corporate houses conveyed to Lanco's resolution professional that the proposed 'challenge mechanism' violated the rules governing the Insolvency and Bankruptcy Code (IBC) as there is no provision for it in the relevant legislation, one of the persons cited above said.

    The so-called 'challenge mechanism' is an auction process involving several rounds of bidding among applicants until the highest bidder is identified.

    This was supposed to be the first time that two of the country's biggest conglomerates -Mukesh Ambani-owned Reliance and Gautam Adani's Adani Power - would directly compete for an asset.

    PFC-REC Owns 41% of Unit's Debt
    Spokesmen at Adani Power and Reliance Industries, led by Asia's two richest billionaires, did not respond to ET's request for comments.

    The third bidder -PFC-REC team -offered Rs 3,020 crore as upfront cash payment at the auction Wednesday, the people said.The PFC-REC combine also holds 41% of debt in Lanco Amarkantak, giving it a bigger say in the resolution process.

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    At the 48th meeting of the committee of creditors (CoC) held in October, lenders decided to hold a close-bid process. As a result, all three resolution applicants - Adani, Reliance and the PFE-REC team - were asked to submit respective improved offers to the first made in August. As per the close-bid process, the highest offer among the three applicants would be declared H1 (the highest bidder).

    In the second round (of close bid) Adani Power gave the highest offer of Rs,950 crore in upfront payment.

    Reliance offered to pay Rs 2,103 crore upfront, while PFC-REC offered Rs 5,521 crore, of which Rs 4,149 crore is deferred payment over 22 years.

    At the 51st CoC meeting, held after the improved offers were disclosed to member banks, lenders passed a resolution to hold a 'challenge mechanism' auction. This change was introduced at a late stage of the resolution process by the CoC, which is being opposed by the two business houses, the first person cited above said.

    "First, a new process (challenge mechanism) was introduced after initially passing a resolution that the 'close-bid' process would identify the highest bidder. Second, there is no provision for auction under IBC," the same person said. "It is quite likely that either both the business houses or one of the two may seek legal remedy."Legal experts said that the PFC-REC combine has a conflict of interests as it is both a resolution applicant and the biggest debt holder. As per the IBC, at least 66% of the lenders (by value of debt) must agree to approve any resolution. That means a single lender with 34% or more can block a resolution.

    Saurabh Kumar Tikmani, the resolution professional, backed by KPMG, has admitted Rs 14,632 crore of claims from 17 lenders.

    Lanco operates a coal-based thermal power project on the Korba-Champa state highway in Chhattisgarh. It has commissioned the first phase, comprising two units of 300 megawatts (MW) each that supply electricity to Madhya Pradesh, Haryana and the home state.



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