Lenders to Alok IndustriesNSE -9.76 % have rejected a revised offer by Reliance Industries-JM Financial ARC to acquire the bankrupt company, implying that the borrower may head into liquidation, banks must make 100% provisions against advances, and hundreds of employees could lose jobs.
Only 70% of the lenders endorsed the revised all-cash offer of Rs 5,050 crore, which was just about Rs 100 crore higher than the previous offer, said two senior officials who did not want to be named. For a resolution plan to be accepted, at least 75% of the lenders have to vote in its favour.
Reliance Industries, in partnership with J M Financial ARC, was the sole bidder for the bankrupt company that is facing claims of Rs 29,500 crore from financial creditors.
This is the second time that lenders have rejected the Reliance–JM Financial ARC offer on the ground that it is very low. At first, the bidder offered Rs 4,950 crore, which was rejected by 30% of the lenders by value. Within 24 hours, Reliance-JM Financial ARC gave a revised offer and urged lenders to vote on it Friday evening.
“In the second round, again 30% rejected it, implying that those who had rejected it earlier were not happy with the revised offer that increased the bid by just about Rs 100 crore,” said a senior official who did not want to be named.
It appears that lenders such as IDBI BankNSE 0.07 %, Central Bank of India and Dena BankNSE -1.52 % were among those that voted against the offer, although their stands on the revised bid could not be independently verified with each bank.
“The offer did not have any equity upside and was marginally above the liquidation value,” said a senior official when asked what may have prompted some lenders to vote against the resolution plan. The liquidation value of Alok Industries stands at Rs 4,200 crore. The revised offer may have implied a haircut of 83%.
The 270-day deadline before which lenders have to finalise a resolution plan ended on April 14, a Saturday. Therefore, the resolution professional (RP) had decided to submit the resolution plan to the bankruptcy court on Monday, April 16, said senior officials. Now that the proposal has not been accepted, the RP is likely to propose that the company be sold as a going concern.
Alok Industries is one of the few companies wherein the RP has called for a resolution plan several times after the borrower was admitted for bankruptcy. In March alone, the RP invited binding bids twice. The RP had set a deadline of March 13 when it received just one bid from JM FinancialNSE -0.36 % ARC.
However, lenders had rejected it since JM Financial ARC did not disclose the name of its strategic partner in the documents. Lenders felt that the bidder must comply with Section 29(A), which bars defaulters from bidding on a resolution plan and, therefore, the names of strategic partners have to be disclosed for them to take a decision on a bid. The second round of bidding concluded on March 27, where JM Financial ARC disclosed that Reliance IndustriesNSE -0.19 % was its partner in the bid.