Global stressed assets and special situation funds are scouting for investment opportunities in India as the National Company Law Tribunal works towards resolving the massive bad debt crisis in the country, Ashish Chhawchharia, partner (recovery & reorganisation services), Grant Thornton, told FE’s Shamik Paul. Excerpts:
What gives you the confidence that resolution of stressed assets will be possible through the NCLT?
There is a very big disincentive for resolutions not happening under the Insolvency and Bankruptcy Code, the disincentive being that there is a guillotine at the end of six months or nine months. Earlier, the key problem was the lack of coordinated decision making on a timely basis. Different banks maintained the same asset at different quality levels – SMA1, SMA2, etc. So, the incentive to make a decision was lacking because while an asset was non-performing for one bank, it was standard for another. But now if they don’t make a decision, the company will go into liquidation. This kind of finality will bring people to the table and almost compel them to take a decision. Also, now there is a collective decision making. First, there is an independent professional looking at resolution options, then there is the committee of creditors and finally the NCLT will have to approve the plan. So that’s why I feel a resolution plan will be probably more likely this time.
Is there interest from potential bidders for the 12 large assets?
I think there is a fair amount of interest, and the reason for that is the fact that there is a sense of finality. People expect a decision in six to nine months and they know that the process will not drag beyond that. When there is a timeline, people get more interested to come in. Previously, when many of the companies ran the process of inviting bids, they did not get so much interest. We have been approached informally by various interested parties to at least come in and participate in the process. Whether they will bid or not depends on their assessment of the asset when they study it more closely. There has been interest from PE investors, stressed asset funds and strategic investors. There are many stressed asset and special situation funds that are looking at India as an investment option including, AION Partners, Deccan Value, Oaktree Capital, TPG and others. Even Piramal and Bain have set up a stressed fund for India.The PE investors could tie up with the existing promoters, or they could appoint key officials like the CEO and CFO and the remaining employees continue as before.
Is the timeline too short, especially for preparing a resolution plan for some of the large assets?
Yes, there is a lot of work and I won’t say that the timeline of six to nine months is not a challenge, but it can be achieved. Also, unless you put a timeline, any decision will keep getting deferred. We are trying to meet the timelines. All the stakeholders will have to meet them. The bankers will have to be ready – they have their own internal processes. The benches will have to be ready. We have 11 benches today. Clearly we will need more. But capacity building is happening at a fast pace. Also, these are early days in the courts. In the coming months, when we have more jurisprudence, more decisions, it will be easier. Plus, as anywhere else, the law is a law. When you put it to practice, the interpretations and the ironing-out has to happen. So those are the kinds of challenge we are seeing today. The six-month or the nine-month timeline is not really the problem.
There is some ambiguity around the government’s recapitalisation programme. Will that impact banks’ decision-making regarding haircuts?
The decision of taking haircuts will not be guided by that as much as by the commercial aspect of the assets. Suppose the liquidation value of an asset is R100, and I am willing to give R80, obviously no one will take that. However, if there are 3 bidders, and at best they are willing to offer R150, people will have no option but to accept it subject to other conditions being met, even if it means taking a haircut of, say, 60%. The amount of haircut that banks will have to take will be determined by what the market is willing to pay. The RBI came out with the norm about 50% provisions. So they recognise the fact that there will be a reduction in the value of the loans.