BIDDING PROCEDURE TO BE FOLLOWED FOR DISINVESTMENT OF PSUs

·        Bidders will be asked to submit their Expression of Interest in a sealed envelope on a specified date, time and venue along with the following documents.

1.      Solvency certificate from a Bank.

2.      Board Authorisations in case of a company

3.      Other documents, if necessary, on a case to case basis

 

• Bidders will be asked to submit their financial offer in a sealed envelope on a specified date, time and venue along with the following documents when Secretary of the Administrative Department will receive the bids.

 

• A committee of Secretary, Additional Secretary and Deputy Secretary of the Administrative Department will prepare a comparative statement of the financial offers received. 
• The comparative statement will be put up to the Minister in Charge of the Administrative Department for final decision.

 

QUALIFICATION FOR BIDDERS

1.         Introduction

1.1       In a strategic sale, apart from Government’s interest in receiving a good return or price for its companies, the Government is also concerned that the company, which is taken over, should function well after disinvestment.  The strategic buyer should be able to bring in more capital and improved technology, wherever needed, introduce better management practices and should be in a position to take proper care of the work force. In short, the strategic partner is expected to have a good track record of performance so that the Government can be satisfied that its assets are being passed on to capable hands.

 

1.2       In order to achieve this objective, it is important that the Government evolves a selection procedure that ensures that only those entities get selected as strategic partners who possess:

·        The requisite managerial and financial strength.

·        A proven track record of following good corporate practices.

·        A good reputation as regards integrity.

 

1.3       While any company, domestic or foreign, in private or public sector, can take part in a strategic sale process, depending on the unique features   of   a  case, and  taking   into   consideration  all relevant   factors   including monopoly issues, Government can always impose reasonable restrictions, in specific cases, in public interest.

1.4       The bidders are selected through a competitive bidding process but, for Government companies to pass into private hands, there are some critical areas which government has to ensure that the bidder is capable of complying with. These critical areas are: -

·        Financial capabilities of the bidder

·        Technical and Legal capacity of the bidder

·        FDI restrictions

·        Integrity of the bidder

·        Security considerations

1.6       The qualification/eligibility criteria for the bidders arise at two stages of the bidding process:

·        At the time of submission of Expression of Interest (EoI).

·        At the time of submission of the financial bid which comes much later and at the end of the process.

2.                     Financial Capacity

2.1       Since the bidder has to buy the PSU involving a substantial financial outlay, it has to be ensured that, companies which are financially sound and capable vis-à-vis the size and business of the PSUs being disinvested/privatized, are only allowed to bid.  Therefore, while issuing an advertisement in the newspaper and website for inviting bidders to take part in the disinvestment process through submission of EOI (financial bids come much later at the end of the process) the qualifying minimum net worth criteria and/or minimum turnover required of the bidding company is specified.  This gives a fair idea of the size and financial strength of the bidding company.  Besides, relevant financial and performance details are also sought for. At this stage, those of the bidders who satisfy these criteria get short-listed and get on to the next stage.

2.2       At the stage of submission of the financial bids, the prospective bidders are required to furnish a bank guarantee, which is retained only in the case of the highest bidder.  This is meant to bind him to fulfill his commitments till the successful closing of the transaction.

2.3       Before accepting the financial bid of any party, a certificate is required either from the banker or from an independent Chartered Accountant that the bidder has got enough funds to complete the transaction. 

2.4       These prerequisites are also a deterrent to bidders who may be having unhealthy balance sheets.  The bank guarantee is a further proof of their financial standing and reputation in the financial world.

3.       Technical and Legal capacity

3.1       Every company must provide along with the EOI a representation, duly executed by its authorized official/ representative that it has the requisite corporate authorization to submit the EOI and that all information provided in the EOI is complete and accurate in all material respects to the best of their knowledge. If, at a subsequent date, it is discovered that the company or any consortium member did not either possess the requisite authorization or that any part of the information provided in the EOI was not complete or accurate in any material respect, the Government reserves the right to disqualify such company or consortium or member of the consortium from the process.

3.2       To access the technical capabilities of the prospective bidder, the Government may ask them to provide a business plan so that the Government is assured of continued services to the satisfaction of the user.  In certain cases, Government may even require the bidders to satisfy a criteria of minimum experience in a particular business/sector, say manufacturing.

3.3       The bidder is required to submit enough information in the EOI for Government to assess the bidding entity’s managerial, financial and technical capability.  Typically, the EOI would contain the following details:

(i)   Executive Summary: This provides a brief description of the bidding company and (where appropriate) of each member in the consortium, containing details like ownership structure, write up on business history and growth, business areas / activities, respective revenue details, etc. It includes a brief commentary on the capability of the company / consortium, as demonstrated, inters alias, in its past track record, to run its own business.

(ii)  The Applicant:        The full name, address, telephone and facsimile numbers, e-mail address of the company or of each member of the consortium and the names and the titles of the persons who are the principal points of contact.

(iii) Basic Information:   This contains the details of the place of incorporation, registered office, current directors, key management personnel and principal shareholders of the company/companies in the consortium. It also contains a copy of its current Memorandum and Articles of Association and copies of audited accounts for the last three years of the company / companies in the consortium. (The latter details help in evaluating financial capabilities as well).

(iv)Management Organization:   An overview of the applicant's senior management and organization structure and in the case of a consortium, that of each    member; summaries of the roles and responsibilities of the directors, key management personnel of the applicant and, in case of a consortium, those of each member.

(v)  International Operations / Joint Ventures / Alliances:            Brief write up of the company's or, in the case of a consortium, of the members, of their international operations, joint ventures / alliances (whether international or domestic), nature and size of such operations, equity ownership, if applicable, copies of the audited accounts for the last one year of such companies.

(vi) Professional Advisors:         The names and addresses of those companies and the professional firms, if any, who are (or will be) advising the applicant/consortium, together with the names of the principal individual advisors at those companies and firms.

(vii)Outstanding Litigation:         Each company, and each member of a consortium must provide with the EOI a statement of pending litigation.

4.         Foreign Direct Investment (FDI) Restrictions

4.1       In case of foreign bidders, the prospective buyer has to comply with the
sectoral Foreign Direct Investment (FDI) caps determined by Government of India and revised from time to time.  In some cases of disinvestment, the FDI restrictions on the bidder are more onerous than the sectoral restrictions.   

5.         Security Considerations

5.1       As PSUs, the companies were wholly or substantially owned by the Government and were operated and managed by the Board of the company under the administrative control of the Administrative Department concerned. In this arrangement, security consideration, if any, were taken care of.  At the time of transfer of these companies to private players, the Government has to ensure that the security of the country is not jeopardized through use / abuse of these companies.

5.2       Further, the companies which have been charge-sheeted or convicted on matters relating to “national security or integrity” under the provision of the Indian Penal Code or Official Secrets Act or other relevant legislation, are disqualified from the bidding process. 

6.         Confidentiality Undertaking

6.1       On being found suitable after submitting the EOI, the Qualified Interested Parties are required to enter into a Confidentiality Undertaking with the Government.Only then are they allowed to participate in the disinvestment process.

6.2       Typically, this undertaking requires that the potential bidders do not misuse this wealth of information. It is not uncommon for competitors to send a bogus team to discover the trade secrets of the other parties.  The undertaking is made by the bidder in favour of Governor of Sikkim (acting through Deputy Secretary of the administrative department), the company treat all the confidential information in confidence and not to disclose to any person, the fact that he has been provided the ‘Confidential Information’ or has inspected any confidential documents or the discussion/negotiation regarding the transaction.

6.3       ‘Confidential Information’ means all information, concerning the business, operations, prospects, finances, or other affairs of the company. It includes, but is not limited to, documents delivered in connection with a due diligence investigation, information concerning business activities, products, specifications, data, know-how, compositions, designs, sketches, photographs, graphs, drawings, research and development, marketing or distribution methods and processes, customer lists, customer requirements, price lists, market studies, computer software and programs, database technologies, systems structures and architectures, historical financial projects and budgets, historical and projected sales, capital spending budgets and plans, current or prospective financing sources, the names and background of personnel, personnel training techniques and materials.

6.4       The language of the Undertakings may vary depending on the case, based on legal advice.

7.         Qualification of Companies/Consortia

7.1       The advertisement for the transaction indicates the broad qualifications of the prospective bidders. Based on the information submitted in EOIs, the Administrative Department carries out an evaluation of the qualifications of the companies/consortia and subsequently notify in writing those companies / consortia which qualify to participate in the next stage of the process.

8.         Additional Information

8.1       Government reserves the right to seek any additional indemnities, warranties, representations or performance obligations from the bidders or any of their group companies to Government’s sole satisfaction.

9.         Reasons for Disqualification

9.1       Notwithstanding anything to the contrary contained in the Request for Proposal document and without prejudice to any of the rights or remedies of Government, Government shall be entitled in its sole discretion to determine that a Bidder is to be disqualified at any stage of the process and its participation in the  Sale process and/or its Technical Proposal and/or Financial Bid dropped from further consideration for any of the reasons including without limitation those listed below:

(i)         if a misrepresentation/false statement is made by the bidder/Member, at any stage in the  Sale process, whether in the Technical Proposal, the Financial Bid, supporting documentation or otherwise and whether written or oral;

(ii)        if the Technical Proposal submitted by the bidder is in any respect inconsistent with, or demonstrate any failure to comply with, the provisions of the Request for Proposal ;

(ii)        if the Financial Bids submitted by the bidder is inconsistent with the requirements of the Request for Proposal in any respect, including not being accompanied by an Ernest Money Guarantee of the specified amount or the Financial Bid being conditional in any respect;

(iv)       failure to comply with any other material requirement of this Request   for Proposal;

(v)        Government is not satisfied with sources of funds/ownership structure of the bidder.

(vi)       failure to comply with the reasonable requests of Government in relation to the  Sale process.

(vii)      Breach of Confidentiality Undertaking executed by the bidder.

(viii)      if it is discovered at any time that a bidder is subject matter of winding up/insolvency or other proceedings of a similar nature;

(ix)       any information regarding the bidder which becomes known to Government/Company and which is  detrimental to  Sale process and/or the interests of the Company.

(x)        initiation or existence of any legal proceedings, by or against the bidder in respect of Company, which proceeding may be prejudiced by the participation of the bidder in the selection process or the transaction, e.g. inspection by a bidder of case files of the Company of matters filed against that bidder; and

9.2       If information becomes known after the bidder has been qualified, at any stage, to proceed with the  Sale process, which would have entitled Government to reject or disqualify the relevant bidder/Consortium, Government reserves the right to reject or disqualify the relevant bidder/Consortium at the time, or at any time, such information becomes known to Government.  Where such party is a Consortium, Government may disqualify the entire consortium, even if it applied to only one member of the Consortium.

9.3        Government’s decision that one or more of the events specified under paragraph 9 has occurred shall be final and conclusive.