No takers for Union Bank’s bad debts despite lowering reserve price

Union Bank of India has failed to attract any firm bids at the auction of its Rs 2,077-crore debt exposure to thermal power company KSK Mahanadi Power, despite lowering its reserve price, said two people aware of the development.

On August 17, Union Bank issued a tender inviting bids for the power company’s Rs 2,077-crore debt at a reserve price of Rs 919 crore for upfront cash, which was lower than Rs 935 crore reserve price set in mid-July, where it failed to attract any offers. Union Bank’s revised reserve price equated to a recovery of 44 paise on a rupee.

Although the bank received half a dozen expressions of interest from asset reconstruction companies (ARCs), it did not attract firm bids at an auction held on September 1, the people said. “Few ARCs can arrange for an upfront payment of about Rs 900 crore, and this may have led to a poor response,” said a senior executive from an ARC.

The development comes less than a month after the State Bank of India sold its KSK Mahanadi Power debt to Aditya Birla Asset ARC. The bid was financially supported by Varde Partners, which has a 50% stake in the ARC. This is the largest sale of distressed loans by any bank where the entire consideration is on the upfront payment.


In July, SBI sold Rs 3,815 crore debt in the thermal power company for Rs 1,622 crore, equating to a recovery of 42 paise on a rupee, as reported by ET on August 12.

Aditya Birla ARC has also acquired the thermal power producer’s loans from Punjab National Bank, Bank of Baroda and Axis Bank in the last two years. The ARC now controls 34% of the company’s loans, a critical level needed under the Insolvency and Bankrupty Code (IBC) since a resolution would not get approved if 34% of lenders voted against it.

The distressed thermal power producer, which operates three 600 megawatt units in Chhattisgarh, has been undergoing insolvency proceedings for nearly four years. The delay in resolution prompted lenders to exit by selling their exposures to ARCs. Vedanta, Adani Power, Naveen Jindal’s Jindal Power, Dharampal Jindal’s Jindal Polymer, Power Finance Corporation and iLabs India Special Situation Fund are the applicants who submitted expressions of interest for acquiring the company.

However, a series of litigation delayed the resolution process. The National Company Law Appellate Tribunal (NCLAT) stayed the resolution process following a plea by asset reconstruction company ASREC that optimal recovery in KSK Mahanadi was possible only if it underwent group resolution.