In the Dharani Sugars case, private ARCs sought a clarification on the method to compute the net present value (NPV) based on the initial bid of ₹235.9 crore.
Banks responded by saying that regardless of whether it’s a 100% upfront cash offer or based on a combination of cash and security receipts (SRs), the comparison value remains ₹235.9 crore, which allows private ARCs to value their bid at ₹235.9 crore on an all-cash basis or ₹331 crore using the cash to security receipt structure.
A consortium of 10 banks led by Indian Bank, holding 34% of the debt, has placed a ₹619 crore loan for sale at an offer price of ₹222.5 crore and will hold Swiss Challenge on September 18.
NARCL offered ₹222.5 crore as the anchor bid, with a minimum mark-up requirement of ₹13.4 crore for other challengers.
Some financial institutions like the Sugar Development Fund, the Indian Renewable Energy Development Agency (IREDA), and ICICI Bank, which holds a portion of ECBs, have excluded their debt from the sale. The sale represents 75% of the company’s total debt.
“Private ARCs now have a fair chance to bid on distressed assets, comparing cash bids and assessing the credit value represented by the difference between cash and SR prices,” said an ARC executive. “Initially, we were unsure about calculating the NPV based on our bid of ₹235.9 crore, which exceeded the Swiss challenge. We asked the lead bank if we could offer an all-cash amount of ₹167.4 crore based on the NPV. The bank clarified that we can either make an all-cash offer of ₹235.9 crore or propose a bid of ₹331 crore using the cash and security receipt structure with a 15:85 ratio.”This will set a precedent for other cases where NARCL serves as the base bidder, the executive said.
In a rare move, in 2019, the Supreme Court invalidated the RBI’s February 12, 2018, circular in the Dharani Sugars versus Union of India case. Following this, the RBI updated its guidelines, requiring banks to increase provisions if they didn’t refer defaulting companies for IBC resolution.
Dharani and other power sector petitioners also succeeded in a case against the RBI, challenging the mandate for banks to initiate IBC proceedings within six months of default in cases where out-of-court resolutions failed.
The company, established in 1987 by Palani G Periyasamy and associates, operated three sugar mills in Tamil Nadu, with a capacity of 10,000 TCD, a 160 KLPD distillery, and a 37 MW co-generation plant as of March 31, 2018.