The Hindu Business Line : Reverse auction in infrastructure equipment finance `doing well'

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New Delhi Feb. 13 The reverse auction process prevalent in The Netherlands' horticulture market is now being implemented in infrastructure finance market in India. And the method appears to have been quite a hit with contractors and equipment vendors.

Srei Infrastructure Finance Ltd has started this process here. The reverse auction is aimed at combining the buying power of all contractors for placing bulk order with equipment manufacturers and get low cost from manufacturers. The process also helps arrive at a low-cost financing mechanism. Srei has already arranged three rounds of such bidding in Kolkata, Bhubaneswar and Hyderabad. It is now going to organise an auction in Delhi on February 16.

THE PROCESS

This is how it works. All contractors interested in buying construction equipment sign up for the bidding process. Infrastructure equipment such as excavators, tippers, dumpers, and loaders from leading manufacturers such as Volvo, JCB, Ingersoll Rand, Tata Motors and Puzzolana are placed on the block. Buyers registered for the process - who are builders and contractors - are asked to bid for buying equipment and repaying the finance over a certain tenor at a particular rate of interest. To ensure participation by only serious bidders, registration involves a payment of Rs 1 lakh, which is adjusted with the company in its orders.

"Suppose 10 buyers bid for buying an equipment at 15 per cent rate of interest and 20 buyers bid for buying the equipment at a lower interest rate of 10 per cent, then all 20 companies get the equipment at 10 per cent interest rate," explained Mr K.K. Mohanty, Executive Director, Srei Infrastructure Finance.

The idea is to get maximum number of buyers for higher volumes of equipment order at the lowest cost financing possible, he said.

Participants can bid on the ever-falling rate of interest, at which they intend to buy the equipment. All successful bidders get the equipment at the interest rate where the bid has stopped.

Srei Infrastructure, which has acquired a patent for this innovative method of financing, terms it as Paison Ki Nilami. Instead of Srei dictating the rate of interest, it empowered the customers to decide the rate influenced by the prevailing demand and supply of the equipment.

"Over 300 buyers registered for the Kolkata auction where we booked orders for equipment worth Rs 150 crore. Similarly, in Bhubaneswar, about 400 contractors placed orders for Rs 150 crore of equipment. In Hyderabad, over 400 contractors participated in the auction and finalised orders valued at Rs 250 crore," Mr Mohanty said. The buyers include all major road contractors and real estate developers.

Srei also gives a touch of glamour to the process by getting TV personalities such as Mandira Bedi and Cyrus Broucha to conduct the auction.

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