Despite Lockdown Constraints, Issues At NCLT, India Saw Significant Investment
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 when lock down has inhibited due diligence efforts and when delays are common in the resolution process.
Kotak has done a direct buyout deal from the NCLT process in case of Prius Commercial Projects amounting to 450 crore. Prius was previously owned by the erstwhile Ranbaxy Family. Amtek Ring Gear was successfully bid by Ares SSG in NCLT amounting to 200 crore. Varde partners invested in Lodha builders, GMR Group and RattanIndia Power. Bain Piramal focus on control of debt was visible in Panacea Biotech and India Steel Corp. PAG has done equity investment for controlling stake in Edelweiss Wealth Management business – and provided a much needed capital for Edelweiss. Ares SSG have successfully invested in Altico, Vedanta, Edelweiss, etc. Oaktree, Davidson Kempner Partners, True North, Edelweiss Special Situation Fund, Apollo Capital, Goldman are few other significant investors.
These investments are in the form of asset buyout, providing rescue credit, purchase of secondary distressed credit, acquisition via 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 has 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 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 2,750 crores which required 100% consent from all the lender – making it highly complex and time consuming process. In case of RattanIndia a debt buyout happened wherein Goldman & Varde Partners bought debt of 6,574 crores at a value of 4050 crores. Again, this required coordinated efforts from the lender group at one side to sell all the debt at one go, and the investors on the other side buying and probably restructuring the debt with the borrower. Oaktree investment in Indiabull wholesale credit portfolio or Vedanta was more straightforward albeit of significant size. Governance structure and quality of management would be paramount on which companies attract these investors for that helps inspire confidence in incoming investor which takes 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 Shapoorji Pallonji group by way of credit amounting to 5,000 crores. We have also seen that joint bidding/ investment have happened to derisk the new set of investors. Basic fundamental aspect behind all this is to reduce the bloated debt and ensure that the debt is sustainable and equity value increases over a period of time with better performance. Looking back RBI came out with restructuring guidelines, CDR, SDR, OTR etc to enable the companies to reduce debt and enhance viability. Some of the 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. RBI introduced asset quality review which exceeded the norm of 90; days payment track record and went into unfulfilled conditions committed by borrowers.
With the introduction of IBC the whole landscaped changed. Overseas fund, ARC and domestic funds entered the market for deals. The funds with deep pockets were ready to invest long on a sustainable model. However, there are 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 between corporate India. Oaktree lost to Piramal for control of Deewan Housing – one of the most watched NCLT resolution given the regulated nature of the entity and involvement of the regulator in the bankruptcy process. Nevertheless, the scope of investment remain attractive and sizeable and funds such as Farallon, Varde Partners, Oaktree, PAG, Ares SSG, Kotak, Edelweiss, etc shall remain active given the pile of NPA in the banking system remain high and corporate India continues to deleverage.
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. More is yet to come so far their confidence in the India reviving growth and improving governance remains.
The author is Managing Partner of Ravirajan & co LLP Chartered Accountants and Independent Directors in many companies
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