A group of lenders, led by Canara Bank, is working to sell non-performing loans worth Rs 1,226.13 crore in Mumbai Metro One Private Limited (MMOPL), a special purpose company partly owned by Reliance Infrastructure and the Mumbai Metropolitan Region Development Authority (MMRDA). The sale will be conducted through a Swiss challenge auction on November 28. A Swiss Challenge Auction is a type of auction process used primarily in government or public sector projects, asset sales, and loan sales. More details about Swiss Challenge Action are given at last.
Key Details of the Loan Sale
- Reserve Price: Lenders have set a minimum reserve price of Rs 1,063 crore for the loan sale, which reflects a recovery rate of 86% based on an initial anchor bid.
- Counterbid Requirement: Any party interested in buying the loans must submit bids that are at least 5% higher than the reserve price and on an all-cash basis.
Ownership of MMOPL
- Reliance Infrastructure: Holds a 74% equity stake in MMOPL.
- MMRDA: Owns the remaining 26%. MMRDA is a government agency responsible for strategic project planning and infrastructure development in the Mumbai region.
- MMOPL Project: Operates the Versova-Andheri-Ghatkopar metro line, India’s first public-private partnership (PPP) metro project. The line spans around 12 km and has 12 stations.
Additional Lenders
- Other banks involved in the MMOPL loan consortium include State Bank of India, Indian Bank, Bank of Maharashtra, and IDBI Bank.
- The project also received funding from India Infrastructure Finance Company (UK) through an external commercial loan, which is not included in the loans for sale.
Bidding Process
- Submission of Interest: Interested buyers must submit their expressions of interest (EoIs) by November 6. After submitting an EoI, they will have time until November 25 to review and assess the loan details.
- Auction Details: In the November 28 auction, the anchor bidder will have the opportunity to match any higher bids submitted by other parties. If the anchor bidder does not match the highest bid, the counterbidder will win the auction.
Terms for Anchor Bidder
- Matching Option: The anchor bidder may match any counterbid using one of two options: an all-cash offer or a cash-plus-security receipts offer. If they choose the latter, the security receipts will be discounted at Canara Bank’s one-year MCLR rate of 8.90% annually for three years.
- Outcome: If no counterbids are submitted, the anchor bidder will automatically win, pending lender approval.
Advisor for Sale
- IDBI Capital Markets and Securities has been appointed to manage the loan sale process.
Swiss Challenge Auction
A Swiss Challenge Auction is a type of auction process used primarily in government or public sector projects, asset sales, and loan sales. It allows an original bidder (also known as the anchor bidder) to place an initial bid, which sets a reserve price. This bid is then open for competitive counterbids from other interested parties. The auction has specific rules:
- Initial Bid and Reserve Price: An initial bid from the anchor bidder establishes a reserve price. Counterbidders must submit offers at or above this price.
- Counterbidding Process: Once counterbids are submitted, the original bidder has the right to match the highest counterbid. If the anchor bidder matches it, they win the auction. If not, the highest counterbidder wins.
- Transparency and Competition: The Swiss Challenge encourages transparency by inviting competition while giving the initial bidder a fair chance to retain their lead position.
- All-Cash Terms: In some cases, counterbidders may need to make all-cash offers or follow specific terms that ensure fair competition.
- Used in Public Sector and Loan Sales: Swiss Challenge Auctions are popular in public-private partnerships, infrastructure projects, and asset or loan sales where governments or consortia need transparent and competitive bidding.
This method balances fair competition with respect for the initial bidder’s interest, ensuring a competitive but organized bidding process.