As companies with high debt succumb to repayment pressure, the investment banking industry is looking for opportunities where corporate houses would be selling a part of their non-core assets to restructure loans.
Steel and base metal producers, export oriented industries, realty firms and aviation firms leveraged themselves highly during the growth phase in the last 2-3 years expecting continuation in demand. Now, with the economic downturn, these companies are approaching their bankers to recast their existing loans to extend the repayment period and grant them additional working capital loans.
“In most of the cases, loan rescheduling would not help the companies as they cannot overburden themselves with interest costs,” said Manish Makharia, executive director and head of the restructuring group, Kotak Investment Banking.
According to an estimate, banks’ non-performing assets (NPAs) are likely to rise to 6 per cent of their total asset size by the end of 2010-11 from the current average of 2-2.5 per cent.
“Ideally, companies should start with selling non-core assets, and following that they may look for strategic investors. This will help them in deleveraging and reducing the cost of borrowing,” he said.
Banks’ NPA levels were much higher at around 15 per cent during the last downturn in late nineties. However, in the last eight to 10 years, the Reserve Bank of India (RBI) has given much power to the lenders by bringing in the Securitisation Act. Under this Act, lenders with 75 per cent plus assets not recovered from a borrower can acquire and sell the assets in three to six months time.
“Indian firms are increasingly involved in financial restructuring of some type,” said Sameer Nath, head, mergers & acquisitions, Citigroup Global Markets India, in an interview to Business Standard last week. “Some companies may also consider selling non-core assets to raise cash, reduce overall leverage and strengthen their capital structure,” he said, claiming it to be an “opportunity” for investment banking.
