Distressed asset management in the era of Modi regime gearing up for the Billion Dollar Investment tool
There has been steep shift in interest from Global Investors seeking opportunities to deploy structured and organised capital into distressed assets. This industry in India has faced quite an ignorant state for long, with the list of convincing reasons to debate. There has been no framework that could have handled a distressed asset over its lifecycle in India.
However, a fair attempt being made under the regime of Modi Government to completely restructure and strengthen Insolvency and Bankruptcy Code 2018, with Investor’s dreams on their palette to make the plunge. IBC 2018 promises to have robust legal, regulatory and resolution frameworks along with well defined stressed resolutions legal procedures and timelines for deliverables of stakeholders Involved.
Unlike any other equity Investment stressed capital Investment need considerable support after the initial financing. It is imperative for the market to see value in this as the price demand on exit is dependent on these factors. A couple of prominent changes are in discussions apart from capital restructuring, surplus value can be created via modulating the management and aligning incentives for stakeholders involved. Though this is a big opportunity for typically large corporate strategic Investors for expanding capacity cost-effectively. However, there are challenges that need to be encountered beforehand making any such bets which are listed below.
- Risk and Reward – Though these Investments are inherently riskier, however close involvement with executional companies can deliver stellar returns.
- Low Correlation with traditional asset class – These are once in a lifetime financial engineering opportunities with minimal relation to equity and debt markets.
- Legal Challenges – Jurisdiction timelines in India have always been long and now with IBC 2018 system has to cope up for continuing trust of Global Investors community.
- Partnering with Experts – Trusted network helps in scouting deal on the table post conducting reference legal checks and avoiding all valuation traps.
- Promoter Bonhomie – Unlike global work environments in India it is damn difficult to completely alienate promoters.
- Robust Incentive Framework – Very little misalignment in the incentive system can derail the whole machine and squander the Invested capital in fractions of seconds.
The excitement in the Industry is ATH as most of the prominent players are planning to penetrate India’s stressed asset class industry with high stakes. SSG Capital Management, Bain Credit, Lone Star Funds and Oaktree Capital Aditya Birla Capital, Varde Partners, Bain Capital, Piramal Enterprises, PAG, formerly Pacific Alliance Group, are looking to enter India with structured capital.
The testament to above all lies in NCLT (National Company Law Tribunal) approval in Liberty House’s resolution plan to acquire Adhunik Metaliks.