Creditors to the two insolvent Srei companies are expecting “significantly higher” upfront cash offers from prospective resolution applicants as the consolidated committee of creditors (CoC) has adopted a challenge mechanism process for inviting fresh resolution plans from them.

All the three bidders — a consortium of Varde Partners and Arena Investors, National Asset Reconstruction Company (NARCL) and Authum Investment and Infrastructure — are taking the challenge mechanism process, scheduled to be held on January 3, “very positively”, sources with knowledge of the matter told FE.”

All the three prospective resolution applicants (PRAs) are taking the challenge mechanism process very positively. On Saturday (December 31) there was a CoC meeting, where all the PRAs were there, and all submitted their technical bids. And, it is expected that they all will be participating in the financial bidding process,” the sources said. The consolidated CoC in its 27th meet held on December 26, 2022 discussed regarding the mechanism for second submission of resolution process.

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The CoC discussed the need for voting during the meeting given the timeline constraints and accordingly sought legal advice from the legal counsel. The legal counsel opined that considering this special scenario, a vote can be done on adopting the challenge mechanism process during the meeting by members present. During the voting, 10 lenders, State Bank of India, Canara Bank, Union Bank of India, Punjab National Bank, Bank of Baroda, Punjab and Sind Bank, Standard Chartered Bank, South Indian Bank, Indian Bank and SIDBI, voted in favour of the resolution for challenge mechanism, while only two, UCO Bank and Bank of India, voted against. Following that, it was decided to adopt the challenge mechanism process.

Five rounds of bidding in the challenge process will be adopted. The CoC has decided that Rs 3,000 crore would be considered as the minimum threshold value of the financial proposals towards the upfront cash payment for the eligible resolution applicants for participating in the challenge process.”

Each financial proposal participating in the first round of the challenge process should at least meet the aforesaid (Rs 3000 crore) threshold value. Theutilisation of this amount will be in the manner set out for Upfront Cash Recovery under the RFRP (request for resolution plans).

It is clarified that for the calculationof the Upfront Cash Recovery, any third-party assets held with the Corporate Debtor (Srei Infrastructure Finance and Srei Equipment Finance) shall not be considered,” according to a note issued by the CoC to the three bidders.

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“In the challenge mechanism process, there exists two parameters – upfront cash component and net present value (NAV) of committed amount under the financial proposals. During the process, eligible resolution applicants can increase amounts under these two components. Lenders expect that in the challenge process, upfront cash component will be increased. In the revised plans submitted by the bidders so far, upfront cash component has remained below Rs 3,000 crore,”  the sources cited above added.

Earlier, as required, all the three resolution applicants submitted their revised resolution plans for acquiring the two Srei companies, Srei Infrastructure Finance (SIFL) and Srei Equipment Finance (SEFL). However, for all the three revised plans, the crucial upfront cash components were below Rs 3,000 crore. The financial bids remained at around Rs 14,000 crore and Rs 13,600 crore, respectively, for the consortium of Varde Partners and Arena Investor, and NARCL.