India Development News & Foreign Investment Opportunities

IBC creates a new investment class — distressed assets

Investors need effective strategy


Investors need effective strategy


Indian Insolvency & Bankruptcy Code (IBC) would has been “very much a positive” for the Indian market and is opening the door to a new investment class — distressed assets, according to a market report.

“Initially, there was concern that the IBC would lack firepower, however, while there have been some hits and misses, on the whole, it has been very much a positive for the Indian market and is opening the door to a new investment class: distressed assets,” said Tarun Bhatia, Kroll Managing Director.

Bhatia said on navigating the market and factors for consideration before and after investments have been made in a survey “Distressed M&A in India: A risk worth taking?”

So far, the results have largely been positive and could ultimately bring significant change to the culture between borrowers and banks in India, he said.

“It’s a step in the right direction although most people realize the IBC still has a long way to go,” said Bhatia.

“The risks for investing in these distressed assets are not much different than those in any other M&A deal,” added Varun Gupta, Managing Director and India Country Leader at Duff & Phelps.

“As long as you have an effective strategy and the right people and resources in place, distressed opportunities can prove to be very valuable pursuits,” said Gupta.

Elaborating on the steps necessary to mitigate risks, Gupta explained that when considering investing in distressed assets, a good place to start is by analyzing the genesis of the distress.

“In some cases, this may simply be business risks playing out. For example, the company or asset may have been overleveraged, anticipating a demand-supply cycle that didn’t play out.

“It is not that the asset itself is necessarily ‘bad’ but rather that certain unfortunate circumstances led the asset into turbulent waters. In such cases, the right investor with the right resources may be able to buy the asset and turn around operations,” he said.

More than two years since its inception, it’s becoming clear that India’s IBC is not just another acronym in a series of past failures by Indian regulators to create a viable restructuring mechanism.

Since 2017, the IBC has brought US$14.3 billion in assets to market and a promising pipeline continues to build.

What is unclear is which sectors will provide the most opportunities for investors – particularly international funds and corporations – and which best practices should be adopted to navigate the often-times complex Indian market, it added.

Kroll, the global leader in risk mitigation and response solutions, and Mergermarket, the leading independent M&A intelligence service, released the report on 29 Oct 2018.

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