CoalMin: Lenders can seek removal of defaulting winners of coal blocks

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New Delhi | January 24, 2015 8:43 AM

State-run and private lenders loaning money to winning bidders of coal blocks can seek their removal...

To insulate lenders against possible default by companies borrowing funds for investing in coal blocks, the government has allowed them the right to seek substitution of a successful bidder.To insulate lenders against possible default by companies borrowing funds for investing in coal blocks, the government has allowed them the right to seek substitution of a successful bidder.

To insulate lenders against possible default by companies borrowing funds for investing in coal blocks, the government has allowed them the right to seek substitution of a successful bidder. State-run and private lenders loaning money to winning bidders of coal blocks can seek their removal if they shy away from meeting their financial commitments.

As per the draft coal mine development and production agreement (CMPDA) announced on Friday, the lenders can serve a substitution notice to the coal ministry and name a company as the substitute to the existing successful bidder. The firm to be called a ‘selectee company’ will have to perform and fulfil the residual terms, conditions and covenants of the CMPDA and discharge and pay the debt due on the terms and conditions agreed to by it with the lenders.

A senior coal ministry official told The Indian Express that the ministry’s nominated authority, which is overseeing the auction and allocation process of the coal blocks has to convey its approval within 60 days of receiving the substitution notice, according to the CMPDA.

The agreement also specifies that companies bidding for coal blocks through a joint venture must not change the shareholding pattern of the JV firm without the prior approval of the government, failing which they can lose their performance security, the coal ministry has said. It also prescribes that apart from meeting the stipulated eligibility conditions, each of the companies must hold at least 20 per cent of voting rights and economic interest in the JV entity.

Failure to meet any of these conditions may lead to appropriation of the performance security of the successful bidders and disqualifying them from participating in any further auction or allotment process, according to the draft coal mine development and production agreement (CMDPA) announced by the coal ministry on Friday. A performance security (bank guarantee) would amount to an aggregate of one year royalty, annual peak rated capacity of a mine multiplied by the final price bid offer.

“Additionally, in case the successful bidder is a JV company, it should ensure that each of the partners ….hold at least 20 per cent of voting rights and economic interest in the joint venture company,” according to the CMDPA.

Draft Rules

* State-run and private lenders loaning money to winning bidders of coal blocks can seek their removal if they shy away from meeting their financial commitments
* The lenders can serve a substitution notice to the coal ministry and name a company as the substitute to the existing successful bidder

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