State Bank of India (SBI), India’s largest lender, is planning to sell bad loans amounting to Rs 2,732.5 crore related to Odisha-based ARSS Infrastructure Projects Ltd. through a Swiss challenge auction. The bank has issued an invitation for Expressions of Interest (EoIs) from entities interested in submitting counter bids for the asset, which will be sold on a full cash basis. Swiss challenge auction is explained here.
Asset Details and Base Bid
- Primary Securities: Rs 230.46 crore
- Collateral Securities: Rs 31.58 crore
- Third-Party Guarantees: Rs 23.28 crore
- Reserve Price: Rs 125 crore
SBI has already received an anchor bid (base bid) for the asset, which serves as the benchmark for counter bids. Entities participating in the process must offer a minimum 5% markup over the base bid to qualify as challenger bids.
Bidding Process
- No Higher Bids: If no counter bid exceeds the minimum markup, the base bid will be declared the winner, pending SBI’s final approval.
- Challenger Bids: In cases where challenger bids exceed the minimum markup, the process continues until the highest counter bid is determined.
- Opportunity for Base Bidder: The base bidder will be given the chance to match or surpass the highest challenger bid.
- Final Winner: The highest bid after this process will be declared the winning bid.
ARSS Infrastructure Projects Ltd.
ARSS Infrastructure is a leading construction company in Odisha and one of the largest multi-disciplinary construction firms in eastern India. The company is currently undergoing a corporate insolvency resolution process as per an order issued by the Cuttack bench of the National Company Law Tribunal (NCLT) on November 30, 2021.
Other Bad Loan Sale: Anjanay Rice Mill
In a separate development, SBI has also announced plans to sell bad loans worth Rs 163 crore related to Anjanay Rice Mill. The reserve price for this asset is set at Rs 7.10 crore, and interested entities are invited to submit EoIs. The e-auction for this asset is scheduled for December 31.
What is Swiss Challenge Auction?
A Swiss Challenge Auction is a transparent bidding process used for selling assets, awarding projects, or managing bad loans. In this method, an entity (such as a bank or government) receives a base bid (anchor bid) from an interested party and then invites counter bids from other participants to find the highest possible value for the asset or project. Here’s how it works:
Key Features of a Swiss Challenge Auction:
- Base Bid (Anchor Bid):
- The entity receives an initial offer (base bid) for the asset or project from a bidder.
- This bid serves as the benchmark for other participants.
- Invitation for Counter Bids:
- Other parties are invited to submit challenger bids, which must be higher than the base bid (often with a minimum markup percentage, such as 5%).
- Matching Opportunity for the Base Bidder:
- If a challenger bid exceeds the base bid, the original bidder (base bidder) is given the opportunity to match or exceed the highest challenger bid.
- Final Winner:
- If the base bidder matches or surpasses the challenger bid, they are declared the winner.
- Otherwise, the highest challenger bid wins.
Advantages:
- Fair Market Value: Encourages competitive bidding to maximize the asset’s value.
- Transparency: Provides equal opportunity to all participants.
- Flexibility: The base bidder can match better offers, ensuring fairness.
Applications:
- Infrastructure Projects: Awarding contracts for public-private partnerships (PPPs).
- Asset Sales: Selling distressed loans or assets, as in the SBI example.
- Government Projects: Allocating land, mining rights, or other public resources.
The process balances competition and fairness, ensuring the entity gets the best deal while respecting the base bidder’s initial proposal.
