CFM Asset Reconstruction Co invoked the corporate guarantee issued by Anil Ambani’s Reliance Power over a loan default by its subsidiary Vidarbha Industries Power, stock exchange disclosures showed. Reliance Power has disputed the amount claimed by CFM and added that the value of assets is sufficient to recover the money.
Last month, CFM ARC became the new and sole lender of Vidarbha Power after it acquired loans from lenders at Rs 1,265 crore in an all-cash deal.
Before sending a notice to Reliance Power on invoking the corporate guarantee, CFM ARC issued a notice to Vidarbha Industries recalling the loan, said people with knowledge of the matter.
Stock exchange listed Reliance Power, which holds a 100% stake in Vidarbha Industries Power, had also provided a corporate guarantee on the loans raised by the latter.
Reliance Power has said that it has received an invocation of the corporate guarantee ‘allegedly’ given by the company.
CFM ARC has claimed Rs 4,954 crore, an amount that is disputed by Reliance Power. In the exchange notice, Reliance Power said that it neither accepted nor confirmed the amount claimed by the ARC.
However, the assets of Vidarbha Industries Power shall be sufficient to meet the debt, Reliance Power said.
Vidarbha Industries Power had petitioned the Bombay High Court objecting to the lenders’ decision to sell the company’s debt under a Swiss challenge auction.
Senior counsels Harish Salve and Prateek Seksaria appeared for Vidarbha Industries, while senior counsels Janak Dwarkadas and Venkatesh Dhond had appeared for Axis Bank and the Reserve Bank of India (RBI).
Vidarbha was aggrieved that the lenders accepted a binding offer of Rs 1,220 crore from CFM ARC even though the existing management of Reliance Power had offered a Rs 1,260-crore settlement. Lenders proceeded with the sale since the court did not grant a stay. CFM ARC also agreed to improve the offer to Rs 1,265 crore to encourage lenders to conclude the deal.
The company has a principal debt of Rs 2,569 crore and $26.7 million (Rs 220 crore) as on July 6, according to a document circulated by lenders inviting bids for their debt.
Last year, the apex court dismissed Axis Bank’s petition to admit Vidarbha Industries for insolvency, stating that the National Company Law Tribunal (NCLT), which approved admitting the company, should have considered external factors that had led to the delay in payments by the borrower.
At the heart of the matter was a claim made by Vidarbha Industries that has won an award of Rs 1,730 crore from the Appellate Tribunal of Electricity. This amount exceeded the Rs 553 crore claimed by Axis Bank.
Vidarbha Industries has installed two coal-based units of 300mw each at the Butibori industrial area in Nagpur, Maharashtra. Both are non-operational due to the unavailability of coal.
It had a power purchase agreement with Anil Ambani-promoted Reliance Infrastructure. In 2017, it sold the Mumbai distribution business to Adani Transmission.
