CoC members, bidders must be barred from buying RCap bonds held by LIC: NGO

They are "insiders" and have access to crucial information, says Infrastructure Watchdog; meanwhile, last date if bond sale to be extended to July 22 as LIC finds no takers

The lenders of bankrupt Reliance Capital, who are now members of the committee of creditors, and about 54 bidders for the company’s assets should be banned from participating in the sale of the company’s bonds by the Life Insurance Corporation, as they are “insiders” and have access to crucial information, an industry watchdog has said.

The Infrastructure Watchdog, a Delhi-based non-governmental organisation, said as part of the bankruptcy process, the RBI-appointed administrator has invited expressions of interest for Reliance Capital and its assets from the prospective bidders. Several prospective bidders, who are interested in acquiring Reliance Capital assets, have submitted their EoIs and are conducting due diligence.

On Tuesday, the Life Insurance Corporation’s plans to sell its exposure in Rs 3,400 crore bonds issued by Reliance Capital did not find any takers as the deadline to submit expressions of interest (EoIs) closed on Monday. IDBI Capital, which has been mandated to sell the bonds, will extend the deadline to July 22. The EoIs was to be followed by an auction to sell the bonds.

As part of due diligence, the watchdog  informed the LIC, the SEBI and IDBI Capital that  these potential bidders have been given access to privileged and confidential business information including Unpublished Price Sensitive Information (UPSf), which is not otherwise available in public domain. These prospective bidders are therefore "insiders" within the meaning of the SEBI (Prohibition of Insider Trading) Regulation, 2015.

Additionally, the NGO said the members of the Committee of Creditors (CoC) constituted by the Administrator also have access to and possess insider information. “It is pertinent to note that several members of  the CoC have also submitted their EoIs and acquired insider information and are doing due diligence. Such members of CoC are "insiders" within the meaning of the SEBI (Prohibition of Insider Trading) Regulation, 2015,” the watchdog said in the letter.

The watchdog said the LIC and IDBI Capital Markets & Securities, which got the mandate to sell the bonds, must ensure that "iInsiders" (ARCs who have submitted their EoIs for RCL or are members of the COC), are prohibited from participating in the process for sale of NCDs by the LIC.

Reliance Capital bonds, currently owned by the LIC, are trading at 70 per cent discount thus making hole in LIC’s books. Several lenders, including the Life Insurance Corporation of India, have made total claims of Rs 25,333 crore against Reliance Capital. As the sale of assets has been delayed, LIC had sought bids from asset reconstruction companies to sell its bonds, according to an advertisement by IDBI Capital Markets & Securities last month.

One of the bidder of Reliance Capital said there could be "information asymmetry" between the CoC members/bidders and those who want to buy RCap bonds from the LIC. "Those who want to buy RCap bonds can be given the same information instead of banning them as then LIC will not get good offers for the RCap bonds," the bidder said.