Chennai, (Asian independent) Are the country’s largest bank and a private bank overlooking the red flags over asset reconstruction company (ARC) Chartered Finance Management (CFM) or have they got a satisfactory answers to their queries in connection with the bid for Vidarbha Industries Power Ltd (VIPL) is the question that hangs down.
The VIPL – a Reliance Power subsidiary- has a 600 MW thermal plant in Nagpur in Maharashtra.
The two banks are considering a bid by CFM for the power company.
It is said, the Reserve Bank of India (RBI) had served a show cause notice (SCN) on CFM questioning its business practices and the Income Tax department too had carried out a search.
It is reported that Axis Bank is the leader of the lender consortium to VIPL, the SBI has loaned a sizable chunk.
It was earlier reported that the banks had asked the Ahmedabad-based asset reconstruction company, CFM ARC, to explain the source of funds or how it plans to finance the proposed acquisition of VIPL.
According to banking sources, the overall Balance Sheet size of CFM is approximately Rs 1,000 crore, with equity of less than Rs 200 crore, and the balance is funded by debt.
CFM does not have the wherewithal to conclude a large transaction of over Rs 1,000 crores on all cash basis, a source revealed.
The ARC has made an all cash offer of Rs 1,120 crore to the lenders of VIPL.
The lenders of VIPL have also sought information and clarity from CFM on the ongoing investigation against it by the Income Tax authorities and the RBI.
They have asked CFM to get a confirmation from the RBI that its ARC licence is valid and the company is allowed to bid.
Notably, CFM ARC is among the four ARCs who have been issued a show cause notices by the RBI, post its special audit, following the I-T raids on the companies.
The VIPL lenders are also keen to know from CFM how they plan to run the power units of VIPL, which have no PPA (Power Purchase Agreement) and FSA (Fuel Supply Agreement). The CFM ARC also has no experience in the power sector.
Recently, Reliance Power has also made a One Time Settlement (OTS) proposal to the lenders of VIPL to settle its debt.
Reliance Power’s all cash offer of Rs 1200 crores is supported by Varde Partners, Singapore, which is already an investor in the Reliance Infrastructure Ltd.
Another bidder in the fray for VIPL is NARCL, who has offered Rs 1,150 crore to the VIPL lenders, but out of this only 15 per cent is payable in upfront cash, while the balance will be paid in interest free installments, over the next 5 years. The Net Present Value of NARCL offer is only Rs 850 crore.