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S Ravi

The author is a practising chartered accountant and an independent director on many large public companies whose views and ideas have been instrumental in framing policy

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BW Businessworld

Indian Assets Command Confidence

The Rs 25,000 crore that both overseas and domestic investment funds have poured into Indian companies demonstrates their confidence in Indian business models. These investments over the past 24-30 months, indicate that more is yet to come

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Domestic as well as international funds have been active in the market, specifically in the distressed space. Despite the constraints of the National Company Law Tribunal (NCLT) and the lockdown, India has witnessed a lot of interest from investors.

Private equity, distressed funds, foreign funds etc. are keenly participating in assets at very attractive valuations. Farallon, Bain-Piramal, Oaktree, Ares SSG, Kotak Special Situation Fund, Varde Partners, PAG, etc. are very active in investments. This has happened even as the lockdown inhibited due diligence efforts and when delays were common in the resolution process.

Bids at the NCLT
Kotak has done a direct buyout deal from the NCLT process in case of Prius Commercial Projects amounting to Rs 450 crore. Prius was previously owned by the family that formerly owned Ranbaxy. Amtek Ring Gear was successfully bid for by Ares SSG at the NCLT, for a sum of Rs 200 crore. Varde Partners invested in the Lodha Group, the GMR Group and RattanIndia Power.

Bain Piramal’s focus on control of debt was visible in Panacea Biotech and India Steel Corp. PAG has invested equity in Edelweiss Wealth Management for a controlling stake in its business – and provided much needed capital for Edelweiss.

Ares SSG has successfully invested in Altico, Vedanta, Edelweiss, etc. Other significant investors include Oaktree, Davidson Kempner Partners, True North, Edelweiss Special Situation Fund, Apollo Capital and Goldman.

Asset Buyouts
These investments are in the form of asset buyouts, providing rescue credit, purchase of secondary distressed credit, acquisition through the NCLT process etc. The process of investment may look attractive but are extremely complex with multiple lenders and also regulatory clearances.

Every company is unique and thus investors have a long process of unravelling the due diligence mystery with sometimes inadequate information, lack of management access and crunched timelines. Existing lenders could have varied security creation with different rights. Lending can be by way of working capital, term loan, corporate loan, preferred debt, debentures etc.

In case of regulated entities like Altico which was taken over by Ares SSG, the time taken can be longer as the structure has to be acceptable to the regulator. The Altico deal is the first resolution deal of a defaulting NBFC outside of IBC. Ares SSG and ACRE ARC did this deal for Rs 2,750 crore which required 100 per cent consent from all the lenders – making it a highly complex and time-consuming process.

In the case of RattanIndia a debt buyout happened wherein Goldman and Varde Partners bought up debt worth Rs 6,574 crore at a value of Rs 4050 crore. Again, this required coordinated efforts from the lender group at one end to sell all the debt at one go, and the investors on the other end buying and probably restructuring the debt with the borrower.

Oaktree investment in Indiabull wholesale credit portfolio or Vedanta was more straightforward, albeit of a significant size.

The governance structure and the quality of management would be paramount, on the basis of which companies attract these investors for that helps inspire confidence in incoming investors, who take the risk of turnaround and recovery which can only happen when the company has a chance to do business and not get embroiled in regulatory or governance issues.

Farallon and Ares SSG invested in the Shapoorji Pallonji group by way of credit amounting to Rs 5,000 crore. We have also seen that joint bidding/ investment have happened to derisk the new set of investors. The basic fundamental aspect behind all this is to reduce the bloated debt and ensure that the debt is sustainable and that the equity value increases over a period of time with better performance.

Restructuring Guidelines
Looking back, the RBI came out with restructuring guidelines, CDR, SDR, OTR etc. to enable companies to reduce debt and enhance viability. Some companies did manage to strengthen themselves.

One such example is Mukund Limited, a steel manufacturing company which came out of CDR and managed to get investment from Sumitomo Japan. The RBI introduced asset quality review which exceeded the norm of the 90 days’ payment track record and went into unfulfilled conditions committed by borrowers.

With the introduction of the IBC, the whole landscape changed. Overseas funds, asset reconstruction companies (ARCs) and domestic funds entered the market for deals. Funds with deep pockets were ready to invest long on a sustainable model.

New Set of Buyers However, there are a new set of corporate buyers prowling for good acquisitions that fit their long term strategy – from Tata Steel, JSW to Reliance Industries – most of the NCLT resolution has been within corporate India.

Oaktree lost to Piramal for control of Deewan Housing – one of the most watched NCLT resolutions given the regulated nature of the entity and involvement of the regulator in the bankruptcy process. Nevertheless, the scope of investment remained attractive and sizeable and funds such as Farallon, Varde Partners, Oaktree, PAG, Ares SSG, Kotak, Edelweiss, etc. shall remain active given that the pile of NPAs in the banking system remain high and Corporate India continues to deleverage (see chart).

The above data, which is in public domain, reflects the interest the domestic as-well-as global funds have shown in India and also reflects the confidence they have in Indian business models. While these funds may have invested Rs 25,000 crore over the past 24-30 months, more is yet to come. So far their confidence in India reviving growth and improving governance remains.


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