Distressed Assets Deal Space Remains Active in the Shadow of the Pandemic & NCLT Slowdown.


S Ravi

Private equity, distressed funds & foreign funds including Farallon, Bain-Piramal, Oaktree, Ares SSG, Kotak Special Situation Fund, Varde Partners, PAG have been keenly participating in asset deals at highly attractive valuations despite the challenges posed by the pandemic as well as the delays in the resolution process which are quite common. Some of the key deals in the recent past include:

  • Kotak’s INR 450 crore buyout of Prius Commercial Projects from the NCLT. Prius was previously owned by the erstwhile Ranbaxy Family.
  • Amtek Ring Gear was successfully bid out by Ares SSG in NCLT in a deal pegged at INR 200 crore.
  • Varde partners invested in Lodha builders, GMR Group and RattanIndia Power.
  • Bain Piramal focus on control of debt was visible in Panacea Biotech and India Steel Corp.
  • PAG has bought a controlling stake in Edelweiss Wealth Management business through an equity investment – and provided a much needed capital for Edelweiss.
  • Ares SSG have successfully invested in Altico, Vedanta, Edelweiss et al.

Other than these significant investors such as Oaktree, Davidson Kempner Partners, True North, Edelweiss Special Situation Fund, Apollo Capital, Goldman have been noticeably active in the deal space as well.

These investments are varyingly structured in the form of asset buyout, rescue credit, purchase of secondary distressed credit and acquisition via NCLT process among others. While at first look the investment dealmaking may look attractive but the process is extremely complex requiring dealing with multiple lenders and securing various regulatory clearances. Every company is unique and that leads to an elongated process of unravelling the due diligence mystery – sometimes based on inadequate information as well as with lack of management access further pressured by crunched timelines. In each of these deals there are multiple structural complexities –existing lenders could have varied securities created with differential rights; at the same time lending itself could be through myriad instruments including working capital, term loan, corporate loan, preferred debt, detbenture et al.

A deal such as Altico that was taken over by Ares SSG a deal can take time to close since the deal structure need to be to the satisfaction of the regulator, on account of the company being a regulated entity. The Altico deal is the first resolution deal of a defaulting NBFC outside of the IBC. Ares SSG and ACRE ARC completed this INR 2,750 crore deal on the backdrop of a process that was highly complex and time consuming on account of the requirement of consent from 100% of all lenders. In case of RattanIndia – a debt buyout by Goldman & Varde Partners of 6,574 crores at a consideration of 4050 crores – a coordinated effort by the lender group on the hand sell the entire debt at one go, and the investors on the other hand buying (and probably restructuring) debt with the borrower is what finally made it happen. Oaktree’s investment into the Indiabull wholesale credit portfolio; or the Vedanta deal were on the other hand quite straightforward in spite of the significant sizes.

Governance structure and quality of management are the key parameters on the basis of which companies are able to attract these investors. The parameters help inspire confidence with the incoming investor, who ultimately assumes the risk of turnaround and recovery. This can only happen when the company has a chance to do business and not get embroiled in regulatory or governance issues.

The author is a practising chartered accountant and an independent director on many large public companies whose views and ideas have been instrumental in framing policy

Feature (Center) Photo Credit: Lukas/Pexels.com

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