India offers $150 billion stressed assets market for foreign funds

India has an attractive $150 billion stressed assets market for foreign stressed assets funds to explore, and that the Insolvency and Bankruptcy ecosystem offers a good route for foreign stressed assets funds to look for those opportunities, said speakers in FICCI’s conference on Investment Opportunities in Stressed Assets in India.

They said that the assets available in India are not stressed but it is the promoters and their balance sheets which are stressed and in need for capital structures to revive those assets.

The event was attended by Chief Economic advisor K Subramanian, Whole Time Member of Insolvency and Bankruptcy Board of India (IBBI), Sudhaker Shukla,  Ambassador of India to UAE Pavan Kapoor,  Chairman & CEO of  Edelweiss Group Rashesh Shah and chairman, FICCI National Committee on Stressed Assets and executive chairman of law firm Shardul Amarchand Mangaldas & Co Shardul Shroff.

Rashesh Shah, Chairman & and CEO of Edelweiss Group, said that despite all the stress in the economy India remains a good investment destination. “The assets available in India are not stressed, it is the promoters and their balance sheet which are stressed. What we have seen is that when these assets find new promoters, they do very well.”

Shah said that of opportunities are there not in recovery but revival of these companies/assets, and revival often requires, not new promoters, but new capital structure. “They require new equities, last mile funding and flexible and patient capital. Many of these companies operate at 18-20% capacity utlisation in absence of working capital,” he said.  

Shah said that a lot of foreign capital is required to fill that funding gap. He rued that India has large savings but these savings do not often get converted to investments.

Shardul Shroff, FICCI National Committee on Stressed Assets and executive chairman, Shardul Amarchand Mangaldas & Co, seconded the Rashesh Shah’s views that most of the stressed companies require short-term working capital that the foreign stressed asset funds can provide.

He said that most of the opportunities are available in the power and infrastructure sector, both of which have suffered from mis-match in long and short-tem funding.

Shroff said that the key drivers for India’s stressed asset market in the future are large supply of quality assets, transparent and time-bound insolvency law.

However, he said there is a need for fine-tuning of the insolvency law especially dealing with persistent and different priorities of the creditors when it comes to resolution of distressed assets.

Chief economic advisor K Subramanian said that the ecosystem of creative destruction is very important part of any economy, which was non-existent before the implementation of IBC. However, he said there is still need for improvement in many areas.

“There is a need to incentivize banks and bankers to take those decisions which involve significant judgement with regards to fair value of loans, haircuts and taking a hit on the P&L account. The possibility of hind sight bias lead to risk aversion especially if malafide intents are ascribed to those judgements,” he said.

He also said there is a need for market for price discovery of distressed assets. In absence of a price discovery mechanism, taking haircuts becomes difficult. “This is where stressed asset funds can play a significant role,” he concluded.