When top executives from one of India’s biggest banks visited London earlier this month, it wasn’t to take stock of how the lender was faring overseas. Donning pinstripe suits, they braved the cold weather to meet with investors — strategic and financial — to discuss with them the sale of stressed companies. Leaving promoters out of the loop altogether, bankers are morphing into investment bankers to try and hawk stressed assets.
For newcomers, they aren’t doing too badly. London-based First International Group (FIG) has been persuaded to take an interest in Electrosteel Steels after a team led by State Bank of India (SBI) met with the foreign firm in December last year. Tata Steel too is negotiating with bankers and going by the fact that it has thrown its hat in the ring, seems to be convinced it could be a good deal.
Judging by the progress so far, prospective buyers aren’t missing traditional investment bankers. The Amin Group and Kalpataru Power Transmission, for instance, are believed to be evaluating the purchase of Jyoti Structures, while Brazilian steelmaker Gerdau is in talks with the consortium of lenders to Visa Steel to structure an acquisition. A few of the prospective buyers have already initiated the due diligence process while a couple have even submitted the term sheets.
If not too many deals are being struck, it would have to be because the bankers are being honest about the state of the companies. “We’re not making power point presentations that show a rosy outlook and numbers that can never be achieved. We are presenting the true picture,” said one banker. That might not be quite in keeping with the style of investment bankers but bankers say they’re going to tell the truth.
The genesis of bankers wearing two hats lies in the SDR — or strategic debt restructuring — a scheme that has seen banks become majority owners in a clutch of companies. Converting the loans into equity has been the easy part. Looking for buyers to take over and run the companies is going to be the difficult part — almost all them are in the red and heavily indebted. Moreover, many are operating in sectors such as steel where the environment is a difficult one.
A couple of transactions may have been closed out by now except that some members of the consortium are dithering. For instance, they’re not able to choose between Tata Steel and FIG, both suitors for Electrosteel Steels.
What’s driving bankers to scout for buyers is that they’re up against a deadline. If 18 months go by and they’re not able to find a buyer, the asset will be classified as non-performing. That might not be the end of the world but it would hurt at a time when the pile of stressed assets is becoming bigger. While banks have been able to ‘acquire’ the shares at a price lower than the ruling market price, or at the average of the closing prices during the 10 trading days before the conversion, it would nevertheless mean a setback.
So far bankers have acquired equity stakes in around a dozen firms including Electrosteel Steels, IVRCL, Jyoti Structures, Gammon India, Lanco Teesta Hydro Power, Monnet Ispat, Coastal Projects, Ankit Metals, Visa Steel and Provogue. By one estimate the debt across these firms is some Rs 83,100 crore, not an amount to be sneezed at.