Initiation of insolvency resolution in Indian companies has opened up a lucrative investment window for specialised stressed assets funds, which have lined up more than Rs 15,000 crore of equity capital for investing in companies up for grabs under the Insolvency and Bankruptcy Code, industry sources said. While a number of such funds have tied up with Indian companies to benefit from turning around stressed assets, many are investing alone.
A total of more than Rs 4 lakh crore worth of assets are currently undergoing resolution under the IBC and this number is expected to rise to Rs 7 lakh crore in a few months when the next batch of companies are taken to National Company Law Tribunal benches for resolution. This presents an opportunity for distressed asset investors to buy good assets a haircut and on a clean slate.
AION Capital, which is a joint venture between Apollo Global Management and ICICI Venture, tied up with Sajjan Jindal-promoted JSW Steel, and this JSW-AION combine recently acquired Monnet Ispat and Energy in an insolvency auction.
Singapore-based Resurgent Power Ventures, which is a joint venture Tata Power, ICICI Bank and other international investors, is in the fray to acquire Jaiprakash Associates’ Prayagraj Power Generation Company (PPGCL), a coal-based power project based in UP. Resurgent Power Ventures faces competition from JSW Energy which has submitted a revised bid of Rs 6,200 crore for the debt-laden PPGCL. While PPGCL is still outside the NCLT resolution, it could be pushed to the IBC in case lenders are unable to finalize a bidder.
Similarly, Aditya Birla Capital last week announced formation of a joint venture with US firm Varde Partners to buy stressed assets. “We see a large opportunity in the distressed space, especially in the mid-corporate segment. One of the things that we bring to the table as a Group, is that we understand how to run many businesses. We are looking at leveraging this skill set as we enter this new business. Thus, our decision to enter into a joint venture with Varde Partners, who bring restructuring expertise to augment our core strength,” said Ajay Srinivasan, Chief Executive, of Aditya Birla Capital.
J.C. Flowers Asset Management LLC tied up with Ambit Private Ltd and launched Ambit Flowers Asset Reconstruction Pvt. Ltd, which will participate in the distressed asset market in India. Other big international investors including Goldman Sachs, Oaktree Capital, KKR & Co., Brookfield and Bain Capital are also scouting for distressed assets in India.
Piramal Enterprises has recently set up a fund – India Resurgent Fund (IRF) – in joint venture with Bain Capital Credit to focus on debt and equity investment in distressed assets and special situations in India. This Fund, which is planning to invest around $1 billion, is focussing on investment in sectors including cement, steel, power, auto components, chemicals, pharma, hospitals, hotels and paper.
Apart from global investors tying up with Indian promoters, many international investors are also investing alone, especially after the government permitted 100% foreign equity ownership of asset reconstruction companies (ARCs) to increase capital flows to stressed assets in the banking sector. Last December, the RBI permitted American private equity giant KKR & Co to start a wholly-owned ARC in India. Industry sources said some other large institutional investors from Canada, Hong Kong and the US
In the 32 resolution cases that have been resolved under the IBC till June-end, banks and other creditors recovered nearly 55 per cent of the total claims, including from large accounts such as Bhushan Steel and Electrosteel Steels, as per the latest data available with the Insolvency and Bankruptcy Board of India. This does not include companies for which liquidation orders were passed. Financial and operational creditors could recover around Rs 49,800 crore out of the total claims of Rs 90,000 crore in these 32 companies.