Private equity investments in stressed assets see jump to $828 mn in 2018

Private equity investment (PE) in distressed assets has seen a substantial jump in 2018 from the previous three years. Investors have put in $828 million in 2018, as against $2 million in 2017. 

Sector representatives have said investors are seriously looking at India's $120-bn distressed assets market, encouraged by regulatory changes.

According to Venture Intelligence data, PEs invested $828 million in 2018 from January over seven deals, as compared to $2 million in one deal last year. In 2016, the amount invested was $1 million in one deal. In 2015, PEs invested $133 million across two deals.

An investment of $326 million by Edelweiss ARC, Oaktree Capital, and others in telecom infrastructure firm GTL Infrastructure last month was on top of the list. Followed by $123 million from AION Capital and others in Monnet Ispat, in the metals and alloys sector, in April.

Other major deals include $119 million by India Resurgent Fund in Archean Group, in the industrial salt and graphites sector; $59 million by Edelwiss Private EQuity in automobile components firm Unitech Machine, and $6 million by SSG Capital in publishing firm Amar Chitra Katha.
 

A senior official from a PE fund said the Insolvency and Bankruptcy Code has changed the game in the past 18-24 months. It has given stressed asset resolutions a legal structure, well-defined processes, responsibilities and timelines. The initial cases before the National Company Law Tribunal (NCLT) indicate the authorities are being pro-active in ironing out new challenges.

To some investors, he added, the current situation seems a once-in-a-lifetime opportunity. A number of the resolution plans given to the NCLT involve big companies looking to strategically acquire large and stressed capacities at discounted rates.

The report says in the past 18 months, a little over 800 corporate debtors have been admitted into the resolution process. There are about 1,800 insolvency professionals and 80 insolvency professional entities, six registered valuer organisations, three insolvency practitioner associations and one information utility functioning as part of the ecosystem.  

Another official from a PE firm said distressed asset investments are exciting since they can buy at a low price and sell at a high one, potentially. The emphasis is on buying good underlying assets with potential for a turnaround, at reasonable valuation. These need to be backed with detailed due-diligence to avoid traps — especially those on pricing, litigation and operations. 

Last month, International Finance Corporation (IFC), investing arm of the World Bank, invested $100 million in the India Resurgence Fund, a joint venture between Piramal Enterprises  and Bain Capital. The total fund size is $300 million, to be invested in the form of debt and equity in distressed assets and other special situations in India.  

Vivek Soni, partner, EY, says a host of global investors are looking for investment opportunities. They are exploring different routes to participate in distressed assets sales, both under a formal insolvency process and before the start of bankruptcy proceedings.