Exclusive | Varde Partners-Aditya Birla ARC highest bidder for debt of KSK Mahanadi Power

Varde Partners and Aditya Birla ARC would jointly hold nearly 20 percent of KSK Mahanadi’s Rs 29,197 crore total admitted claims from financial creditors, sources said. [Representative image]

US-based alternative asset manager Varde Partners and Aditya Birla Asset Reconstruction Company were declared the highest bidder for Punjab National Bank’s entire exposure to KSK Mahanadi Power. The duo jointly offered Rs 752.40 crore at an open auction held on September 1, two sources familiar with the development said.

The duo’s bid was just Rs 12 lakhs more than the reserve price of Rs 752.28 crore set by the bank to acquire its Rs 1,720 crore debt in the distressed thermal power company, the sources said.

KSK Mahanadi Power was admitted to the corporate insolvency and resolution process in October 2019 at the behest of Power Finance Corporation. Prudent ARC, which had also submitted a bid for PNB’s debt, was the second-highest bidder. It had made an offer at the reserve price, one of the sources said.

Upon acquiring PNB’s debt, Varde Partners and Aditya Birla ARC would jointly hold nearly 20 percent of KSK Mahanadi’s Rs 29,197 crore total admitted claims from financial creditors, the same source said.

Over the last year, they have jointly invested Rs 1,308 crore in acquiring debt of the power company and its ancillary company Raigarh Champa Rail Infrastructure, sources said. Of this, Varde Partners alone has invested $151 million (Rs 1,111.72 crore), added the source.

In March, Varde-Aditya Birla ARC brought Bank of Baroda’s Rs 433 crore debt in the power company at Rs 130.5 crore and Axis Bank’s Rs 1448 crore debt in KSK Mahanadi and Raigarh Champa Rail at Rs 425 crore in September 2020, sources said.

Aditya Birla ARC is a 50:50 joint venture between Varde Partners and Aditya Birla Capital.

Varde declined to comment while AB ARC and PNB did not respond to a request for comment.

Improved outlook

The bid by the duo for PNB equates to 44 paise on a rupee but based on the Rs 3165.3 crore admitted claim of the bank at NCLT it stands at 24 paise. This is marginally higher than the 22 paise that Varde-Aditya Birla ARC paid to the Bank of Baroda in March this year on its admitted claims.

KSK Mahanadi Power has six power units of 600 mw each in Chhattisgarh. Half of these are operational while the remaining three are under various stages of construction. The company generates an income of Rs 250 crore a month by selling power to distribution utilities of Andhra Pradesh, Tamil Nadu, Chhattisgarh, Gujarat and Uttar Pradesh, said the first source.

Two of its ancillary companies of KSK Mahanadi – KSK Water Infrastructure and Raigarh Champa Rail Infrastructure -- were also admitted for corporate insolvency process on January 1 this year by Hyderabad NCLT. KSK Water operates a pipeline that supplies water to the power plant while Raigarh Champa Rail carries the raw material to the plant.

Hurdle

In February this year, NCLT rejected PNB’s petition to consolidate the resolution process of KSK Water with KSK Mahanadi stating that “group insolvency is unknown to the Insolvency and Bankruptcy Code.” PNB has pleaded consolidation on grounds that they are interlinked which would enable them to maximise recovery. The NCLT instead suggested that the committee of creditors of three companies could “sit together and find a common resolution applicant.”

While PwC backed Sumit Binani is appointed as resolution professional for KSK Mahanadi and Raigarh Champa Rail, V Venkatachalam is the RP for KSK Water. Although PNB has appealed against the NCLT order at the appellate tribunal, lenders fear that the resolution of the company could be affected, as reported by Moneycontrol.com on June 16.

The first sign of trouble was seen early this quarter when three operational power units remained shut for over a month after the resolution professional of KSK Water Infrastructure refused to supply water until KSK Mahanadi clears its dues of Rs 8 crore, said the second source. The matter was resolved late last month when the CoC of KSK Mahanadi agreed to clear these dues, the same source said.

KSK Mahanadi entered into a bankruptcy proceeding after Adani Power withdrew its Rs 10,200 crore offer in January 2019, the source said.

Several companies including Adani Power, Vedanta group entity, Jindal Power, ICICI Bank and Tata Power backed Resurgent Power Venture, India Resurgent Fund and iLab had submitted an expression of interest for the company to the RP but the resolution process has not progressed after the consolidation plea was rejected by NCLT.

KSK Mahanadi was founded by Sethuraman Kishore and Kolluri Ayyappa Sastry family in 2010 through holding company KSK Energy Ventures. However, after the company missed payments, PFC invoked a share pledge of KSK Energy and acquired 71 percent in KSK Mahanadi as part of a broader strategy by lenders to find a buyer outside of NCLT.