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More distressed asset funds may enter India now

The judgment gave clarity to the implementation of the insolvency law.

ET Bureau|
Last Updated: Dec 16, 2019, 08.05 AM IST
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Data suggest that global investors are now more interested in the Indian distressed asset market.
Mumbai: Distressed asset funds may make a beeline for India following a recent Supreme Court order upholding the primacy of secured creditors in the Essar Steel case.

While Lone Star, Cerberus, Brookfield and Varde Partners may ramp its India investments, New-York based Blue-Mountain Capital is thinking of investing in Indian assets, experts said.

India’s apex court recently paved the way for global steel giant ArcelorMittal to take over Essar Steel after it upheld the primacy of financial creditors in the distribution of funds received under a corporate insolvency scheme.

The judgment gave clarity to the implementation of the insolvency law.
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It also raised expectations that deal activity by global sponsors specialising in stressed assets may rise.

Several specialised players may either look for an India entry or set up their own platforms in India.

“Certainly, IBC is becoming a mature law and clarity is being provided to distressed asset investors through landmark judgments,” said Sourav Mallik, joint MD, Kotak Investment Banking. “In my mind, you will see these funds piggybacking on asset reconstruction companies and slowly opening up to setting up their own offices and platforms in India for direct investments.”

According to data compiled by Kotak Investment, deal value in the mergers and acquisitions space increased by nearly 50 per cent, primarily driven by distressed M&A.

IBC has intensified activity in the distressed M&A space in India over the last two years, with completed deals worth $14.3 billion. After IBC, distressed M&A deals comprised 15 per cent of all mergers and acquisitions in India.

Apart from the ArcelorMittal-Essar Steel buyout, Patanjali is in the last leg of its acquisition of Ruchi Soya, Tata Steel acquired Bhushan Steel and Reliance Industries along with JM Financial will acquire Alok Industries.

Global funds have also not been far behind, with Blackstone acquiring a subsidiary of troubled mortgage lender Aadhar Housing Finance and Lone Star buying 50 per cent in Rattan India.

Earlier in the year, Deutsche Bank AG set up a unit in India to buy and re-organise soured debt.

India is facing one of the worst bad loan crises globally as more than 2.4 per cent of total loans in its banking system may be under stress, on top of its 9.6 per cent bad debt ratio as of June, the highest among major economies, according to estimates by Credit Suisse.

Data suggest that global investors are now more interested in the Indian distressed asset market.

Between financial year 2017 and 2019, the share of security receipts held by institutional investors grew to 58 per cent from a paltry 1 per cent, while the share of asset reconstruction companies grew to 33 per cent from 16 per cent.

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