Hungry For Stressed Assets
Business Today|December 27, 2020
Private equity and stressed asset funds continue to show interest in acquiring value assets undergoing insolvency proceedings despite delays and litigation
DIPAK MONDAL

THE BATTLE FOR ACQUIRING Dewan Housing Finance Ltd, the first financial service provider to go through insolvency proceeding, is intensifying with Adani group’s last minute ‘revised’ offer, taking other bidders, also called resolution applicants, by surprise.

While others in the race — Piramal Enterprises and foreign distressed asset firms such as Oaktree Capital and SC Lowy — took umbrage at the last-minute change in Adani group’s offer and threatened to pull out of the bidding process, Adani hit out at them for using the media to prevent maximisation of value for lenders and depositors.

The Adani group has now offered to increase its bid for the loan portfolio of the debt-laden housing loan company to ₹33,000 crore against its earlier offer of ₹31,250 crore. Oaktree Capital, the only other bidder which had offered to buy DHFL’s entire portfolio, wanted to pay ₹31,000 crore.

While other bidders have complained about Adani group jumping the queue and not adhering to requirements laid down by the Request for Resolution Plan regulations, the latter justified its move on the ground that it was offering better value for the assets.

All this is nothing new. Multiple extensions of dates for inviting expressions of interest (EoIs), multiple revisions in resolution plans, last-minute entry of bidders, and endless rounds of litigation are characteristics of the country’s insolvency and bankruptcy regime.

But notwithstanding the uncertainties, PE and distressed asset funds, many of them based overseas, continue to throw their hats in the ring. The pull, of course, is the availability of quality assets at very attractive prices.

Rashesh Shah, Chairman and CEO of Edelweiss Group, recently said during a conference that assets available in India are not stressed, it is the promoters who are stressed. When these assets find new promoters, they do well. According to experts, India’s $150-billion stressed asset market is an attractive bet for foreign funds since the insolvency and bankruptcy ecosystem offers a good route to scout for opportunities.

It is not just the supply of quality assets, which attracts alternative investment funds, the valuation is a good draw as well. Consider the case of EPC Construction India, a part of the erstwhile Essar Group. The company owed ₹7,237 crore to bankers and financial institutions. It was acquired through the insolvency process by a Mauritius-based distressed asset fund — Royal Partners Investment Fund Ltd —which paid just ₹900 crore, or 12.5 per cent, of the amount claimed by bankers.

This is not a one-off case. There are 10 such cases where a local or foreign investment fund has acquired assets through insolvency proceedings, and in all cases, bankers have taken a haircut of 60 per cent or more.

However, these acquisitions have not always been easy. They often come with a lot of legal and procedural delays, which at times, neutralises the benefits of buying cheap. For those funds, time could be very significant as their return on investment (RoI) projections could alter significantly in case of delays, especially for distressed assets, which may see sharp erosion in values with time.

$150 BILLION Approximate size of the Indian stressed asset market

A Rough Ride

Uttam Galva Metallics and Uttam Value Steel, two subsidiaries of Uttam Galva Steel, were acquired by a consortium of two distressed asset funds — US-based Carval Investors LLP, and UK-based Nithiya Capital Resources Advisors LLP.

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