No change in NPV for Reliance Capital, 'number sacrosanct': Torrent

Company goes to NCLT after Hinduja group makes post-auction offer for bankrupt financial services firm

The Torrent group has said its offer for Reliance Capital—the highest—was based on the bankrupt financial services firm' net present value (NPV) and meets guidelines lenders had set before the auction.

Torrent, to buttress its point, highlighted the difference in opinion about its offer between the advisor to Reliance Capital’s committee of creditors (CoC) and the advisor to the administrator appointed by the Reserve Bank of India. Torrent, in a filing with the National Company Law Tribunal (NCLT), said since the upfront and deferred amounts were subject to negotiation with lenders, there was no question of a non-compliant bid. “The only sacrosanct number is NPV, which was the bid parameter which has never been changed by Torrent,” said a legal source aware of the company’s arguments.

The CoC has rejected Torrent’s offer of Rs 8,640 crore and plans a second auction on January 19. The CoC changed its stand after the Hinduja group made a post-auction offer of Rs 9,000 crore for Reliance Capital. Torrent has moved NCLT against the second auction.

The CoC said it is not obligated to approve Torrent’s resolution plan, which also scored the highest in an evaluation matrix. “The CoC found a discrepancy in Torrent plan and the administrator wrote to Torrent on January 4th saying the NPV of the financial proposal as submitted by Torrent in their draft resolution proposal does not match with the highest bid amount submitted by them in the challenge mechanism,” said Kapil Sibal, lawyer for CoC, last week.

As Hinduja group offered Rs 1,000 crore more than Torrent after auction closed, Reliance Capital lenders told NCLT they don't want to lose a higher amount and hence a second auction is necessary. Lenders have an exposure of Rs 24,000 crore to Reliance Capital.

Torrent, in NCLT filings, said as the challenge-process guidelines made it clear that the auction was to be conducted on NPV as the bid parameter. The NPV discovered during the challenge mechanism on December 21 last year could not be changed, it said.

NPV is derived from upfront payment and discounted value of the deferred payments based on discounting rates as per the evaluation matrix. The evaluation matrix has proposed different discounting rates for different tenures. The auction process guidelines also said that the breakup of the NPV (split between upfront and deferred amounts) is to be mentioned in the draft resolution plan, which was to be submitted after the completion of auction. Hence, Torrent submitted a plan of Rs 3,750 crore as upfront cash and Rs 7,915 crore deferred payment resulting in NPV of Rs 8,640 crore.

The RBI administrator, on January 4, wrote to Torrent that the company’s NPV is not correct. This was solely due to the difference in interpretation of the application of discounting rates between the advisor to CoC and advisor to administrator and not incorrect calculations by Torrent, said the company.

In order to remove all interpretation issues in application of discounting rates, Torrent then offered the entire amount of Rs. 8,640 crore as upfront payment in the plan submitted on January 6th. The dispute will be heard by the NCLT on Tuesday as the second auction is kept on hold.