Prospective investors in stressed companies — private equity firms, stressed asset funds and corporates—are expecting banks to take large haircuts in return for an equity infusion. Sources familiar with the development told FE investors want lenders to take a hit of as much as 50-60% on their dues. Most companies are near-bankrupt and have been admitted by the National Company Law Tribunal for insolvency proceedings.
Not surprisingly, lenders are unwilling to take such huge haircuts, pointing out the assets command more value and they should be realising far greater value. “Buyers are hoping to strike a bargain by pressuring banks. This is creating the problem,” a resolution professional said on conditions of anonymity.
Bankers that FE spoke to indicated a haircut of 5-10% is feasible. A banker with a large state-run bank said the discussion are likely to get over by end-October, and subsequently the resolution plans are likely to be submitted by the interested investors.
Global stressed asset and special situation funds like AION Partners, Deccan Value, Oaktree Capital, TPG and large Indian companies including Tata Steel and JSW Steel have shown initial interest in buying stake in the stressed assets.
“Banks are also not interested in holding on to the assets, but they will take a haircut only if they see a resolution coming through,” the resolution professional said.
“Since there is a delay in decision making and getting onto a resolution plan, there will be a lot of deliberation, a lot of brainstorming before a plan can be finalised.”
Sources said the on-going discussion are particularly tough for assets in the steel sector since the overall sector is depressed. Among the steel assets, Monnet Ispat and Energy, Electrosteel Steels, Bhushan Steel, Bhushan Power & Steel and Essar Steel have invited expression of interest from potential investors.
“There is no dearth of interest in the stressed assets. But the challenge is a lot of these assets are in sectors that are already suffering – steel, textile, power, etc. When the steel sector is overall not performing well, where will you get an attractive offer from? The potential investors will only want to buy a distressed asset if they believe they are getting a deal at a good value. But for the banks, the market determined rate is a very tough thing to accept. The challenge is that there is a disconnect between market valuations and expectations,” said Reshmi Khurana, MD and Head of South Asia, Kroll.
In June, the RBI’s Internal Advisory Committee (IAC) had said 12 accounts totaling about 25% of the R8 lakh crore non-performing assets of the Indian banking sector would qualify for immediate reference under the Insolvency and Bankruptcy Code (IBC). Of these, R6 lakh crore are with the state-run banks.
Subsequently, Jyoti Structures, Essar Steel, Monnet Ispat and Energy, Alok Industries, Electrosteel Steels, Amtek Auto, Bhushan Steel, Bhushan Power and Steel, ABG Shipyard, Lanco Infratech and Jaypee Infratech have been admitted by the NCLT.