PFC-REC's winning offer for Lanco unit runs into regulatory hurdles

Power Finance Corp (PFC) and REC's joint bid to buy stressed Lanco Amarkantak Power has run into likely regulatory hurdles after the department of investment and public asset management, or Dipam, questioned the transaction structure the two state-run companies want to use to complete the deal, sources told ET. The PFC-REC duo had outbid the Adani Group and Reliance Industries in the race to buy the distressed power plant.

Dipam, which is in charge of state invested assets, is not comfortable with PFC and REC acquiring the power project through a joint venture (JV) company they created last year specifically for the purpose of acquiring stressed power plants.

According to sources in the know, Dipam is not in-principle opposed to the acquisition of stressed power projects by the PFC-REC combine, but it has reservations about this being done through a separate company that would require fresh capital to be allocated for a defined purpose.
However, it may still approve the transaction being undertaken by the duo by recommending tweaks in the structure, sources said.

The government department under whose supervision all public sector enterprises fall has the ultimate veto in decisions of strategic importance taken by state-owned companies.

Emailed queries sent to Dipam's secretary Tuhin Kanta Pandey remained unanswered. Lanco Amarkantak Power's resolution professional Saurabh Tikmani was unavailable for comments. PFC and REC did not respond to queries.

Lanco Amarkantak Power was admitted for insolvency proceedings in September 2019.

The PFC-REC combine had offered ₹3,020 crore for Lanco Amarkantak Power after a Swiss challenge mechanism was introduced in the bidding process that had attracted both Reliance Industries and the Adani Group. A Swiss challenge involves using the highest offer as a base price and inviting bidders to better that offer.

In this case, Adani's offer of ₹3,000 crore was used as a base price for the challenge. Eventually, neither Adani nor RIL participated in the Swiss challenge, leaving PFC-REC as the winning bidder.