Following Grid explains the criteria and system established by banks, for bidders participation in buying distressed companies, which are under insolvency.
The exercise is expected to be done on scores and top five companies scoring the highest will get a chance to negotiate with the banks for a better deal.
- There appears to be sleek chances for the promoters companies, to win the auction.
- A list of 12 accounts, with the necessary resolutions where the companies are due over Rs.1 lakh crore in debt is being finalized.
- The model reveals that one who goes for payment of upfront recovery in cash, would get the preference and then on the others who pay through other modes.
- Banks are also learnt to be interested in owning something on companies which are in auction which would prompt all bids to come out with the portion of equity retained by banks.
- The shareholding offered to banks should be between one and five per cent.
- Process letters would be spell out the timelines and requirements covered under the plan.
- Possibilities of the lenders coming out with their own plans, has prompted the banks in not divulging all proposed measures.
- The committee of creditors, propose to hire an independent valuer for benchmarking plans and obtaining internal approvals
- The independent valuation will be finalised and released to the committee of creditors only after receipt of all applications.
- Further Banks are insisting that a resolution plan should be accompanied by an earnest money deposit guarantee and a performance bank guarantee, to be released only after receiving the upfront contribution.
- Bankers say similar models as was followed in case of Bhushan Steels will be applicable for other accounts as well.
- Plans that provide no upfront cash will have no point. One additional bonus point will be awarded for every 2 per cent increase in upfront cash payment. However, if the cash is given by taking loans from the existing banks in the consortium, such proposals will have to be accepted after due consideration.
- For the balance amount, a net present value approach (NPV) is proposed to be taken. For example, the NPV will be drawn up for the average maturity of bonds, the redeemable value of quasi equity instruments, etc.
- If the applicant is ready to give lenders more than a 20 per cent stake in the company on sale, such proposal will get a score of 10. There is no scope for not giving any share to banks.
- Fresh equity infusion is one of the criteria, but only equity funds will be considered for scoring purposes. Importantly, the credit rating of bidders will be a key criterion for shortlisting.
- In case of bidders who are not rates, scores based on net worth or assets under management will be assigned. T
- There will also be scores for corporate guarantees extended by a rated entity for residual debt, as well as business plans. Scores will be allotted for any improvement proposed in capacity utilisation, sales realisation, improving earnings, backward integration and the ability to source raw materials for the company on sale and for better technology adoption.