Lenders to CG Power and Industrial Solutions Ltd on Wednesday asked interested entities to better an offer made by Tube Investments of India Ltd for a majority stake in the stressed power equipment maker, in an attempt to derive greater value from the sale.
Murugappa Group-led Tube Investments had agreed to invest ₹700 crore in the company for a 56.61% stake. If the Tube India bid is finally accepted, lenders will recover only about 45% of their loans outstanding, said a person aware of the development.
This has prompted banks to seek proposals from other interested parties under the Swiss Challenge method that throws open a bidding process to entities that want to offer a better price for the asset. Banks are hoping this will help them recover more than what Tube Investments has offered for CG Power. Tube India will still be allowed to better the highest offer discovered in the new bidding round.
“While banks have an offer from the Murugappa Group, the Swiss Challenge method will help us improve on it and lead to better recovery,” the person said on condition of anonymity.
At the end of March 2019, CG Power’s debt stood at ₹2,485.5 crore, according to its annual report. Bankers to the company include State Bank of India, Axis Bank, Bank of Maharashtra, Corporation Bank, Canara Bank, ICICI Bank and IDBI Bank.
The lenders have entered into an inter-creditor agreement on 11 August under the Reserve Bank of India’s stressed asset resolution framework and hired SBI Capital Markets Ltd as an adviser.
Last week, CG Power said it has reached a securities subscription agreement with Tube Investments to sell 64.25 billion shares at ₹8.56 each for a total of ₹550 crore. This will give Tube Investments a 50.62% stake in CG Power.
Tube Investments will also be allotted 17.52 billion warrants, convertible to an equal number of shares within 18 months from the date of allotment, for ₹150 crore. After the conversion of the warrants, the Tube Investments stake in CG Power will grow to 56.61%.
“CG Power and Industrial Solutions Ltd is in default of its debt that is owed to certain banks and financial institutions. Lenders of the company have formed a joint lenders’ forum, with State Bank of India acting as the lead bank for the process,” the notice said on Wednesday.
It added that following a board resolution on 10 August 2020, the company has agreed to run the resolution process jointly with the lenders.
In August last year, CG Power said its board discovered “significant accounting irregularities”, including suspect transactions that have led to an understatement of the company’s liabilities and advances to related and unrelated parties by hundreds of crores of rupees. It had said that advances to related and unrelated parties and the Avantha Group may have been potentially understated by ₹1,990.36 crore and ₹2,806.63 crore, respectively. Following these allegations, its chairman Gautam Thapar was sacked.
