Savvy PE funds too find investments stuck in CDR cell

Nov 05 2013, 09:55 IST
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There are at least eight PE-backed firms whose loan recasts are being considered by the CDR cell. There are at least eight PE-backed firms whose loan recasts are being considered by the CDR cell.
SummaryMarquee names like Fidelity, Barings Asia have investments in firms whose debt is being restructured.

While private equity (PE) players are considered to be smarter than bankers, it turns out a host of them have invested in firms that are now with the corporate debt restructuring (CDR) cell.

Marquee PE names including Blackstone, Sequoia Capital, Fidelity Capital Partners, Barings Asia PE and 3i Capital have investments in companies whose debt is being restructured.

A list compiled by FE based on data from the CDR cell shows there are at least eight PE-backed firms whose loan recasts are being considered by the CDR cell. The most recent of these is Coastal Projects — backed by Baring PE Asia, Sequoia Capital and Fidelity Capital Partners — which wants bankers to rework loans of R3,575 crore. Once a company goes into CDR, PE firms say they are left with little option but to wait out the process.

“If banks find an investor ready to buy a stake, it will practically defy the purpose of the recast. So, PE investors in firms that see restructuring are stuck at least till the company is out of it,” says an investment banker.

Stuck with their investments, PE fund managers complain that debt restructuring in India delays the possibility of an early exit. The CDR process takes anywhere between six and 12 months to be completed.

“Under Chapter 11 (law for bankruptcy) in the US, the court forces lenders and other stakeholders to take a cut in their debt exposure and convert the debt into equity. So, the lenders end up becoming equity stakeholders. India lacks such a forced process; it simply extends the timeline of the debt repayment,” says a fund manager of a global PE firm on condition of anonymity.

Interestingly, PE investors aren’t obliged, under the existing debt restructuring norms, to bring in additional funds or take a haircut. However, in some cases like Soma Enterprise, promoters have sought additional funds from their PE investors to meet the additional promoter contribution required under the restructuring norms. The company has been referred to the CDR cell to recast R6,000 crore.

“The promoters at Soma are still in discussions with the investor (3i Capital) to help them with the promoter contribution,” says an official from Soma who did not want to be named.

Under RBI’s restructuring norms, promoters’ sacrifice and additional funds brought in by them should be a minimum of 20% of the sacrifice by banks or 2% of the

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