| Government
have recently established a new Department for Disinvestment to
establish a systematic policy approach to disinvestment and privatisation
and to give a fresh impetus to this programme, which will emphasize
increasingly on strategic sales of identified PSUs. Government equity
in all non-strategic PSUs will be reduced to 26% or less and the
interests of the workers will be fully protected. The entire receipt
from disinvestment and privatisation will be used for meeting expenditure
in social sectors, restructuring of PSUs and retiring public debt.
- |
|
Extracts
from Budget Speech of Finance Minister (2000-2001)
|
The
strategic sale method being the preferred option in the Finance Minister's
Budget Speech and also in the recommendations of the Disinvestment Commission
and earlier the Rangarajan Committee, is described in detail in this
Chapter.
A typical three-stage strategic sale process is as follows:
Stage
I - Qualification of Companies/Consortia
a) Issue of advertisement inviting EOIs
b) Submission of EOIs and supporting documentation
c) Despatch of RFQ, background information and PIM to interested parties
d) Qualification of companies/consortia
Stage II - Request for Proposals and submission
of Bids
a) Notification of qualified companies/consortia and issue of "Bid pack"
containing a detailed Information Memorandum (IM), Annual
Reports of the company, Request for Proposals (RFP) and further information
to qualified parties.
b) Due Diligence (including interaction with management, access to data
room and site visits)
c) Negotiations and finalisation of contractual documents
d) Submission of final bid
Stage III
- Completion
Evaluation of bids
Government approvals and Regulatory approvals
Signing of contractual documentation
Completion / closure of strategic sale
Post closing adjustments
Normally it would take 6 months to 9 months for a simple privatisation
operation. However the time period can vary depending on the complexity
of the process.
Stage
I
Issue of Advertisement inviting EOIs
A public announcement of a privatisation transaction assures the people
of the transparency of the transaction. A typical advertisement in this
category usually provides a short description of government policy on
privatisation, profile of the enterprise being privatised, the bidding
procedure, deadline for submission of expression of interest or bids,
and the address for further information. Advertisement is normally given
in three major national newspapers and one international newspaper besides
industry/trade journals. A copy of the advertisement is put on the internet
on the websites of the PSU, administrative ministry, Department of Disinvestment
and Ministry of External Affairs.
Submission of EOIs & Supporting Documents
Any company / consortium, participating in a privatisation transaction
has to submit an Expression of Interest. It is normally submitted alongwith
a statement of legal capacity; and a litigation impact statement. It
is the responsibility of applicant to ensure that EOI is delivered at
the prescribed address by the stated deadline. The covering envelope
of all EOIs submitted should be clearly marked "Private and Confidential
- Expression of Interest for the Strategic Sale". Responses received
after the deadline or not accompanied by the required documentation
are not considered. A company /consortium may be disqualified for any
misrepresentation, failure to provide the required information or if
any member has already submitted a separate EoI.
Contents of EOIs
All EOIs generally include the following information:
1. Executive Summary
This provides a brief description of the 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, inter
alia, in its past track record, to run its own business.
2. Background Information
a) 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.
b) 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.
3. Management Organization
i) An overview of the applicant's senior management and organisation
structure and in the case of a consortium, that of each member;
and
ii) 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.
4. 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.
5. 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.
6. Legal Capacity of the Company/Accuracy of
Information
Every company and each member of
a consortium must provide with the EOI a representation, duly executed
by its authorised official/ representative that it has the requisite
corporate authorisation 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 authorisation 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.
7. Outstanding Litigation
Each company, and each member of
a consortium must provide with the EOI a statement litigations of pending.
Despatch of RFQ, background information and Preliminary Information
Memorandum (PIM)
After the expression of interest
is published, the investors are interested in knowing details about
the company. The purpose of Preliminary Information Memorandum is to
assist the investors in deciding whether they should proceed ahead with
the proposed disinvestment.
Structure
Of PIM
A typical Preliminary Information
Memorandum includes the following information:
1. Introduction
This gives a brief of the government
decision regarding disinvestment in the company, the extent of equity
held by the Government, the extent of equity to be the disinvested,
the contact person, the relevant telephone numbers and fax nos.
2. Information About The Company
This contains the information about
the company, its history, its activities, the location, management,
human resources, quality control, markets and marketing arrangements,
capital structure, various assets and other details about the company.
It also gives the strengths and opportunities of the company.
3. Financial Details
The Preliminary Information Memorandum
gives the profit and loss account and balance sheet of the company for
the last five year.
4. Formats
The preliminary information memorandum
contains the formats for submitting Expression of Interest, statement
of legal capacity and RFQ.
Qualification of Companies/Consortia
The
advertisement of the transaction indicates the broad qualifications
of the prospective bidders.
Based on the criteria mentioned in the advertisement, the bidders are
shortlisted.
A common way to create a shortlist is to introduce another stage between
announcement and short listing. This stage is referred to as Request
for Qualification (RFQ). This is normally done to discourage non-serious
bidders.
In the announcement for the transaction, the potential bidders can be
directed to apply for prequalification by submitting detailed information
in response to an RFQ document. Potential bidders send a letter asking
for the RFQ package. They fill out the forms, supplying the requested
information in the desired format. The government then uses this information
to shortlist potential bidders.
Request For Qualification (RFQ)
A typical RFQ consists of the following three main sections :
1. Introduction & Description Of The Strategic
Sale Process
This section contains : Govt's Strategic Sale Objectives, Background
Information, Questions/Clarifications, Strategic Sale Timetable, Overview
of the Qualification Process, and overview of the future process.
2. General Requirements & Instructions For
EOIs
This section contains Eligibility Conditions, Notification of Due Date,
Number of Companies and Filing Requirements, Conditions for Consortium
and Disqualifications.
3. Contents of EOIs
This Section contains basic information to be provided in Expressions
of Interest about the bidders, like the executive summary, background
information, management, organization, international operations / joint
ventures / alliances, operational ability, details about professional
advisors of the bidders, legal capacity of the company and outstanding
litigation as explained in Sub Para (b) above.
Based on the information submitted in EOIs, the Ministry and the advisors
will carry 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.
Stage II
RFP & Bid Process
The proposed Strategic Sale process, consequent
to the submission of EOI, involves a detailed due diligence exercise
to be undertaken by the Bidder followed by submission of a Technical
Bid and a Financial Bid.
The due diligence phase involves providing
a Bid Pack containing various documents to the Bidder. Besides, visits
to the Data Room, site visits to the units of the company form a part
of the due diligence phase. At the end of this phase, the Bidder is
expected to submit his Technical Bid and the Financial Bid. Details
of form and content of the Bids and the proposed due diligence process
are given in RFP.
Notification to qualified / short listed parties & issue of Bid Packs
A Bid Pack containing the following
documents is made available to the qualified / shortlisted bidders,
along with RFP after getting a confidentiality undertaking signed by
them:
i) Information Memorandum;
ii) Previous 3 years' audited annual accounts of the company,
and
iii) Data Room Rules.
The following documents (which may or may not
form a part of the Bid Pack) are also made available to the qualified
/ shortlisted bidders in due course: -
i) Draft Share Purchase Agreement;
ii) Draft Shareholders' Agreement, and
iii) Provisional results for the Financial year
Where the EOI has been submitted by a Consortium,
it is expected that there shall not be any changes in the Members of
the Consortium consequent to the submission of EOI.
However, if a change is desired by some or all
the Members prior to the submission of the Technical and Financial Bid,
such change shall have to be approved by GoI. Similarly, consequent
to the submission of EOI, if the Bidder desires to form a Consortium
by inducting new Member(s), it shall have to seek an approval from GoI.
Where the Bidder is a Consortium, the stake
in the ordinary share capital of the company can be acquired and held
either through an investment vehicle ("Consortium Vehicle") or through
direct holding in the company by each Member or through any Group Company
(ies).
Confidentiality Undertaking
The IM being a much more detailed document,
it is customary to send it only to those who have given a Confidentiality
Undertaking. 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.
It is an undertaking made by the bidder in favour
of President of India (acting through Joint Secretary of the administrative
ministry), the company and advisors to 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.
Confidential information means all information,
concerning the business, operations, prospects, finances, or other affairs
of the company, It includes 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.
It also includes information memorandum, request
for proposal, draft of shareholders and share purchase agreements or
other materials prepared in connection with the transaction.
Confidentiality undertaking also provides that
the bidder shall not deal with any officer, Director or employee of
the Govt. or Company, regarding the business, operations, prospects
or financing of the company without advisor's express written consent.
The confidentiality undertaking contains an
indemnity clause, whereby the bidder agrees to indemnify the advisor,
the Govt. and the company any damages, loss, cost or liability arising
out of any unauthorised use or disclosure by the bidder.
Request For Proposals (RFP) :
A typical RFP consists of the following three
main sections:
1. Background and General Information:
This section describes the goals of the privatisation
transaction and provides information on the company that is being privatised.
2. Conditions of Agreement:
In this section of the RFP, a summary of contractual
obligations is provided in simple, non-legalistic language.
3. Proposals and Selection Process:
This section describes the entire privatisation
procedure including the process of evaluation of bids.
Information Memorandum (IM)
After obtaining the confidentiality undertaking,
Advisors send out an Information Memorandum (IM) along with the RFP.
An Information Memorandum is a much more in-depth description of the
company to be privatized than that suggested by the RFP.
This reduces the cost of preliminary due diligence
for all potential bidders, thereby increasing the chances of attracting
quality players who are in great demand.
A typical information memorandum usually has the following
sections:
1. Executive Summary: This is a
brief chapter containing introduction of the company, investment considerations,
business overview, objectives of Government
of India and the role of the strategic partner. Business overview will
include information on business activities,
infrastructure, marketing and distribution, land and summary financial
performance.
2. General Information on India includes
introduction about India, its institutional framework, demography, language
and literacy, international relations, economic
and financial indicators, foreign trade, balance of payments, economic
indicators and PSU reforms.
3. Sector Scenario generally contains
an overview of the industry, its segmentation, regulatory environment
governing the sector in India, and policy initiatives
in the sector. Industry segmentation would includes various segments
of the industry in India. Regulatory environment
governing the sector in India would include compulsory legislation,
voluntary standards, policy relating to small
scale undertakings, policy related to foreign investments in the sector
and laws pertaining to employer - employee relations.
Policy initiatives would include regulation and control, fiscal policy
and taxation.
4. Business Review contains introduction
of the company, chronology of its growth, overview of its business,
its operations. Operations include facilities,
land, marketing and distribution, manufacturing plants and process,
raw materials and research and development (R
& D).
5. Structure, Responsibilities and Systems
contains structure of the company, structure of the manufacturing units
and financial and management information systems.
Structure of the company means finance, marketing, operations, human
resources development and administration. Financial
and management information systems contains financial accounting, management
accounting and budgeting.
6. Directors, Management and Employees
contains description of the Directors, Senior Management and Employees.
It contains information on the remuneration,
employee entitlements, recruitment, retirement and dismissal, training
and development, pension and welfare obligations
and industrial relations. Employee entitlements generally means basic
salary, dearness allowance (DA), residential
accommodation / house rent allowance (HRA), conveyance, provident fund
(PF) and gratuity, bonus, productivity linked
scheme, overtime, annual increments, accident insurance, medical reimbursement
scheme, health scheme, loans / advances, other
benefits and perquisites, leave, holidays and leave travel concession
benefits.
7. Financial Statements of the company
include profit and loss data, balance sheet data and operational results
normally for the last 5 years.
Share Purchase Agreement
The bidders put in their bid based on the last audited
balance sheet information made available to them. However, the company
is transferred to them at a later stage. There could be either an increase
or decrease in working capital and debt during this period. Share Purchase
Agreement fixes the closing date on which the company is handed over
to the buyer so that the difference between the closing date and the
date of last audited balance sheet can be arrived at and accounted for.
It describes the purchase price, the mode of payment and the actions
at closing time. It also lays down representations and warranties given
by both the parties.
Share Purchase Agreement is entered into among the President of India
(acting through the Joint Secretary of the Administrative Ministry),
the company, the strategic partner and other principals as applicable.
It contains the following sections :
1. Definitions and principles of interpretation
: This section deals with the definitions contained in the
agreement, certain rules of implementation and
the summary of the entire agreement along with the schedules.
2. Purchase and sale : It describes
the actions at closing time, other actions and the place of closing
along with other documents relevant for the above
transaction.
3. Purchase price : It describes
the purchase price and the mode of payment.
4. Representations and Warranties of the Government
: It describes the right to sell, due authorization, enforceability
of obligations, regulatory approvals, incorporation,
due authorization, enforceability of obligations, absence of conflicting
agreements, litigation, regulatory approvals,
foreign participation, strategic partner review; access to information,
investment intent, source of funds, technical
proposals and shareholding structure.
5. Agreements on Representations and Warranties
: It describes the various representations and warranties
given by both the parties.
6. Covenants of the parties : It
describes the actions to satisfy closing conditions, the requirements
of preservations of records and of making public
announcements.
7. Conditions precedent : It lays
down that the representations at the closing time be true and accurate.
It also lays down the performance of obligations,
receipt of closing documentation, consents, authorizations and registrations.
8. Indemnification : It lays down the conditions for the
indemnification by the strategic partner.
9. Termination : It lays down the conditions for termination
of the contract and effect of this termination.
10. Waiver/Survival : The waiver/survival clause is added
at the end of the agreement.
11. General : The general section
includes the various provisions regarding expenses, notices, assignment,
further assurances, dispute resolution/submission
to jurisdiction, amendments, governing law, appointment of agent and
severability.
Shareholders' Agreement
Shareholders' Agreement is a very important
agreement. It defines the rights and obligations of both the parties.
Concerns of Government on protection of employees' rights, future investment/business
plans and the precautions against assets stripping are generally reflected
in it. It lays down the conditions for indemnification of purchaser
losses after ignoring the De-Minimis figures, the survival period after
which the claims become time barred and the indemnification limit to
which a purchaser can be indemnified. It also lays down the terms and
conditions of indemnification for any disputed tax liabilities, litigation
liabilities and environmental liabilities. It lays down the procedure
for management of the company after disinvestment. It also includes
various representations and warranties given by both the parties. It
lays down the dispute resolution mechanism for both the parties.
Shareholders' Agreement is entered into among
the President of India (acting through the Joint Secretary of the Administrative
Ministry), the company, the strategic partner and other principals as
applicable.
It contains the following sections :
1. Definitions and principles of interpretation
: It contains the various definitions and rules of interpretation
given in the agreement.
2. Purpose and scope : It defines
the purpose and the scope of the agreement. It lays down the conditions
for compliance with the agreement. It lays down
the various conditions to be complied by the company.
3. Equity participation; financial support : It lays down
the conditions for equity participation, additional capital and dilution
of Government Equity Interest.
4. Management of the company : It
describes the constitution of the Board of Directors, procedure for
removal and replacement of nominees, procedure
for calling meetings of Board, quorum, procedure for approval of matters,
deemed consent, casual vacancies and filling
the post of alternate Director and Managing Director.
5. Shareholder meetings : It describes
the procedure for general meeting of shareholders, notice of shareholder
meetings, quorum and voting requirements.
6. Transfer of equity shares : It
lays down the conditions for general restriction on transfer, rights
of first refusal, change in control, event of
default, government's right to sell, Strategic Partner's right to buy,
determination of fair market value, procedure
for call and put options, permitted transfers and compliance with legal
requirements.
7. Representations and Warranties :
It describes the various representations and warranties given by the
company, the strategic partner and the government.
It also includes a survival clause.
8. Indemnification and confidentiality:
It lays down the various indemnifications given by all the parties in
case of breach of contract. It also includes a confidentiality
clause. It lays down the various equitable remedies and costs in the
event of a breach of contract.
9. Miscellaneous : It includes clauses
on arbitration, application of this agreement, assurances, benefit of
the agreement, amendments and waivers, assignment,
severability, notices, governing law and expenses.
Due Diligence
The purpose of the due diligence
programme is to provide the Bidder an overview of the Strategic Sale
programme and a detailed information on the company's businesses. In
order to enable the Bidder to obtain the required information, the programme
provides for data room visit followed by site visit.
The following is a summarised, indicative
list of types of documents and information required.
Financial Documents
All annual reports.
Quarterly reports.
All accountant and auditor's reports and opinions.
Management financial reports, capital expenditure budgets, projections
and reports for last five years.
Operating budgets, projections, and reports for last five years.
Any financial information presented to GoI in last five years.
Operating revenue accounts for last five years.
Operations and maintenance accounts for last five years.
Accounts and Investments
List of all bank accounts and investments, including account balances
and value of investments.
Loan Documents
A chart setting forth loan amortisation and interest payments (with
the company both as borrower and, if applicable, lender).
A chart showing other debt-like obligations of the company (letter of
credit repayment obligations, installment sales obligations,
capitalized lease obligations).
All loan agreement in which the company is a borrower (together with
related promissory notes, security documents, and ancillary
agreements).
All loan agreements in which the company is a lender (together with
related promissory note, security documents and ancillary
agreements).
All documents relating to debt-like obligations of the company (letter
of credit repayment obligations, installment sales obligations,
capitalised lease obligations).
Equity Documents
A chart setting forth all capital contributions of the company and share
issuances by the company; share issuance and transfer
ledger.
All equity subscription agreements, option agreements, etc.
Corporate Documents
Memorandum and articles of association.
Bylaws.
Minutes of shareholder and board meetings for last five years.
Licenses and Permits
List of all required licenses and permits.
All licenses/permits.
All correspondence relating to revocation, modification, or non-issuance
of any license or permit.
All laws and regulations applicable to the company (including any laws
relating to environmental and safety matters).
All environmental and safety permits.
All tariffs applicable to the company in last five years.
All environmental and safety reports prepared in last five years.
Litigation
Status report of all litigation, disputes, etc., pending or concluded
in last five years.
Litigation files relating to pending matters.
Employee Matters
List of all employees indicating name, years of service, position, and
salary (employees below a particular grade could be classified
in groups).
List of all welfare, pension, and health plans, together with a brief
description of each and a financial summary relating to each
(i.e., the company's assets and liabilities).
List of unionised workers and unions. · All unions and collective bargaining
agreements.
Employment agreements.
Description of bonus and profit sharing arrangements, together with
any related documents.
Tax Matters (including income tax, sales tax, excise duty, and other
taxes)
List of tax liabilities and payments during last five years.
Tax filings and notices for last five years.
All disputes relating to tax matters.
Real Estate
List of all owned and leased real property, together with schedule of
annual lease payments and lease expiry dates.
Title documents relating to owned real property.
Leases relating to leased real property.
Property, Plant and Equipment
List of all owned/ leased tangible property (if appropriate by class)
and inventory, together with schedule of annual lease payments
and lease expiry dates.
All purchase and services contracts under which equipment and services
are to be provided to the company. · Plant accounts
Intellectual Property
List of all intellectual property owned or used by the company.
All intellectual property ownership, license, royalty and similar documents.
Description of computer systems and hardware.
Customer Documents
Standard forms, if any, of customer contracts, billing documents, etc.
Customer service policies and records of service.
Copies of material customer complaints.
Customer statistics for each class of customer.
Technical Data
System maps.
Technical assessments and reports prepared in last five years.
Negotiations & Finalisation Of Contractual Documents
During the course of due diligence, and thereafter, the qualified bidders
are also invited to offer their comments on the contracted documents
(i.e. the draft Share Purchase and the Shareholders Agreement) provided
to them, with a view to finalizing those and making terms and conditions
thereof uniform, so that the bids are submitted by all bidders on same
terms and condions.
Details Of Technical & Financial Bids
Form and Content of the Technical Bid
In its Technical Bid, the Bidder must provide the following:-
i) The ownership structure and the investment route which
the Bidder / Member proposes to adopt for its investment in the company
with a diagram or corporate structure chart showing the shareholding
relationship between the Bidder / Member and the
Group Company through which the equity stake in the company is to be
held;
ii) Confirmation whether there has been a change in the Consortium
or formation of a Consortium consequent to the submission of
EOIs;
iii) The details, with respect to any Member who may have joined the
Consortium;
iv) Evidence that the Bidder / Member has the necessary corporate authorisations
to enter into and perform its obligations as per the
Contractual Documentation, and
v) Response to the Technical Bid.
The Technical Bid must be signed by the Bidder
/ all Members of the Bidder consortium and submitted as an original
version in one sealed package. The covering envelope of the Technical
Bid should be clearly marked 'Private and Confidential - Technical Bid
for the Strategic Sale '.
Details of Financial Bids
Form and Content of the Financial Bid
The Financial Bid must be:-
(i) In the form to be provided by GoI;
(ii) Expressed in Indian Rupees;
(iii) Made on the basis of the terms of the revised final drafts of
the Contractual Documentation as may be circulated to the Bidder
(iv) Unconditional and open for acceptance for a period of 180 days
from the stipulated deadline;
(v) Must be signed by the Bidder or, where the Bidder is a Consortium
by all the Members of the Bidder, and
(vi) Submitted to GoI on or prior to the stipulated deadline.
The Bidder submits to GoI one copy of
its Financial Bid, contained in a separate sealed package. The covering
envelope on the package containing the Financial Bid must be clearly
marked 'Private and Confidential - Financial Bid for Strategic Sale'
and include on the envelope the name of the contact person and address
of the Bidder (to whom any unopened Financial Bid should be returned).
Earnest Money Guarantee
The Bidder or in the case of Consortium
any of the Member of that Consortium, singly or jointly, shall be required
to enter into an Earnest Money Guarantee agreement for a stipulated
amount. The draft of the Earnest Money Guarantee agreement is provided
to the Bidder.
All the bids have to be submitted before
a stipulated deadline.
The selection of Purchaser is based on
an evaluation of the Bidder's Technical Bid as well as the Financial
Bid.
Principles of Evaluation of Technical Capabilities
The principles underlying the evaluation
of the technical capabilities of the Bidder are twofold: -
(i) Bidder's understanding of the industry in which the company
operates and of the company's existing and proposed business(es),
including its strengths, weaknesses, areas of concern, future potential,
etc, and
(ii) Bidder's views as expressed in its Technical Bid as to how it will
use its experience and expertise in the operation and management
of the company for its existing and / or proposed business activities.
A Bidder can be disqualified for any of the
reasons listed below:-
(i) if a material misrepresentation is made by the Bidder / Member,
whether in the Technical Bid, the Financial Bid, supporting documentation
or otherwise;
(ii) if the Technical Bid submitted by the Bidder is in any material
respect inconsistent with, or demonstrate any failure to comply with,
the provisions of RFP;
(iii) if the Financial Bid is not submitted separately from the Technical
Bid of the Bidder;
(iv) failure to comply with any other material requirement of RFP, and
failure to comply with the reasonable requests of GoI in relation
to the Strategic Sale process.
Stage III-Completion
Bids are opened before an empowered
committee. The Technical Bid and the Financial Bid are submitted in
separate envelopes. First, only the technical bids are opened and the
names of firms, who have submitted the technical bids, are recorded.
The financial bids are placed in one package, the contents recorded
and sealed. In reviewing a bidder's methodology, the committee looks
at its business plan and its approach to fulfill the government's objectives
for the transaction, qualifications and experience of permanent staff,
innovative ideas, and technology proposed to carry out the objectives
as outlined in the RFP. After the technical evaluations have been completed
those proposals, which do not fulfill the technical criteria, are rejected.
Once the technical evaluation has been done, financial bids of only
those parties are opened who fulfill the technical evaluation criterion.
Financial bids of those parties, who have been rejected in the technical
evaluation, are not considered and they are kept aside in a sealed cover.
The whole process is carefully minuted, incorporating all the details.
Post Closing Adjustments
The bidder submits his bid based on information
supplied to him in the data room. This information is the last audited
balance sheet. However from the date of the last audited balance sheet,
till the date of handing over (called the closing date), there may be
accretion or depletion in the current assets, current liabilities resulting
in the change in Net working Capital and the debt position. The difference
between these figures between the date of the last audited balance sheet
and the closing date is called post closing adjustment and depending
on whether there is an accretion or depletion of the current assets
and debts, this amount is paid by the government/purchaser to the other
party.
Within 90 days following the closing date, an
accounting firm is jointly selected by the Government and the purchaser,
from the CAG's approved panel or otherwise as mutually agreed. The firm
finalizes the "Closing Date Net working Capital Amount" and the "Closing
Date Debt Amount". These computations are final and binding on both
the parties.
If there is accretion in the Net working capital
on the closing date, the purchaser would pay the differences to the
government. Conversely, if the working capital decreases on the closing
date, the government would pay the difference to the purchaser.
Similarly if the closing date debt amount exceeds
the amount given in the last balance sheet (which was the basis of the
bid), then the government would pay the difference to the purchaser.
Conversely if the closing date debt amount is less than the debt amount
given in the last balance sheet, the purchaser would pay the difference
to the government.
All payments are normally settled within 45
days of the date of handing over the closing date accounts by the auditors.
Indemnification by the Government
The Government indemnifies the purchaser from
any actual losses, liabilities, damages, judgments, settlements and
expenses arising out of any breach by the government of any representations
and warranties contained in the agreement.
A cumulative aggregate amount of losses (called
the Aggregate Liability threshold) is decided, below which all minor
losses are ignored. This mutually decided threshold is normally 3-4%
of the total Purchase Price. If the losses are more than this threshold
level, and arise out of some breach or violation by the government,
then the purchaser is indemnified these losses by the government. For
calculations of Purchase Losses in individual events, a figure (say
Rs.1 lakh in each incident) is agreed to, which is called De-Minimis
Purchaser loss. All individual amounts less than this De-Minimis figure
are ignored in calculating the purchaser loss. The total amount indemnified
by the government is limited to an agreed limiting percentage of the
purchase price. Normally, irrespective of the loss, the indemnified
amount will not exceed 70% of the total purchase price. All the claims
of indemnity are to be preferred within the survival period (normally
24 months) after which they become time-barred.
Tax-liabilities
If there is any liability at closing time of
sales tax, income tax or excise duty, which is disputed, the company
pays that under protest. If that dispute is resolved unfavourably against
the company, the government would indemnify that amount to the company,
provided the purchaser has informed the government within the stipulated
period and provided that the purchaser has not been compensated for
this liability earlier.
Litigation
If there are certain litigations, which are
listed in the schedule of agreement, the government may retain all liabilities
in their respect, subject to the clauses of the agreement and would
make all efforts to resolve them. Subject to the conditions of agreement
the government would indemnify all liabilities arising out of these
litigations to the purchaser.
Environmental Liabilities
If there are any claims regarding environmental
damages arising out of the acts of commission/omission on the part of
government during the period prior to disinvestment, and the claim has
been preferred during the survival period, then subject to the clauses
of the agreement, the government would indemnity the liabilities arising
out of these claims to the purchaser. It is advisable to have an environmental
audit done prior to the disinvestment to benchmark the extent of such
liabilities.
