Mumbai, Dec 20,2022:  In a big setback to the resolution process of Reliance Capital Ltd (RCAP), a consortium of Cosmea Financial and Piramal Group, which was the highest bidder for RCAP assets, has pulled out of the bidding process.

The planned e-auction for Reliance Capital, approved by the committee of creditors (COC), is scheduled to be held on Wednesday, and the exit of the highest bidder on the eve of the auction has come as a big jolt to the lenders of Reliance Capital.

According to sources, the Cosmea-Piramal consortium has decided to walk out of the resolution process as it believes that the contours of the bidding process have been significantly altered, whereby the base bid in the auction itself requires a significant increase of approx Rs 1,500 crore over and above the highest bid, to start participating in the process.

The COC has fixed a floor value of Rs 6,500 crore for the auction, which is Rs 1,500 crore more than the Net Present Value (NPV) of the Cosmea-Piramal resolution plan.

Further, the increments in the auction process for the second and third rounds have also been set at very steep levels of Rs 1,000 crore each.

To further aggravate the situation, Rs 500 crore for round four and Rs 250 crore for every subsequent round have been set. 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.

The consortium feels that it is not only unreasonable and arbitrary but also unrealistic and unworkable.

The bidders are also of the opinion that non-transparency of not declaring the highest bidder and not providing the ranking of the bidders after every round, is contrary to the e-auction conducted throughout the country by the Indian government and the state governments relating to spectrum in the telecom sector and solar and wind power projects.

The best practices followed by the governments are, unfortunately, not being adopted in this case.

With the exit of Cosmea-Piramal, there are now only three players left in the race, i.e. Hindujas, Torrent, and Oaktree.

Cosmea-Piramal, with a total bid value of Rs 5,231 crore, was the highest bidder for Reliance Capital CIC (Core Investment 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.

Hindujas’ 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.

The floor price of Rs 6,500 crore for the auction is Rs 1,500 crore or 30 per cent higher than the NPV value of the Cosmea-Piramal bid.

Now, with an exit of Cosmea-Piramal, the second highest bid of Hinduja for Rs 4,800 crore becomes the highest bid, and the difference between the highest bid and auction floor price also widens to Rs 1,700 crore. Hence, the floor price becomes 35 per cent more than the highest bid.

The difference between the auction floor price and Torrent and Oaktree’s bid value is Rs 2,300 crore and Rs 3,900 crore, respectively.