Forced Insolvency Taking India Deals to $80 Billion, Moelis Says

Updated on
  • Moelis CEO expects M&A volumes of $70 billion to $80 billion
  • Distressed assets, local consolidation in focus, Girotra says

Overseas fund managers and companies are tracking India’s efforts to force its biggest defaulters into insolvency proceedings as interest in buying distressed assets grows, according to investment bank Moelis & Co.

A dozen companies in sectors including steel, power and construction may become buyout targets after the Reserve Bank of India ordered lenders to take them to insolvency court and set in motion a timeline for them to devise a restructuring plan or face liquidation. The “finite” process under a 2016 law means some offshore investors may have the confidence to “take a shot” and bid for good-quality assets, said Manisha Girotra, chief executive for the India operations of Moelis, the investment bank founded by Kenneth Moelis.

“After they see a couple of test cases move smoothly, then you will probably see more interest,” Girotra said in an interview this month in Mumbai. “Let’s see how these 12 pan out but, generally, the view is far more confident on these assets getting restructured today compared to seven months ago.”

To read more on India’s efforts to pressure defaulters, click here

Resolving India’s $180 billion pile of stressed debt has become a priority for Prime Minister Narendra Modi as he struggles to kick-start capital spending in the private sector and create much-needed jobs. The central bank’s list of 12 companies, which account for about $31 billion of soured loans, is said to include Essar Steel India Ltd., Bhushan Steel Ltd., Jyoti Structures Ltd, Jaypee Infratech Ltd. and ABG Shipyard Ltd., people familiar with the matter said earlier.

The National Company Law Tribunal has agreed to start insolvency proceedings against Essar Steel, Monnet Ispat & Energy Ltd., Jaypee Infratech and Bhushan Steel among others. A repayment plan must now be completed within 180 days, with a 90-day extension allowed, according to the Insolvency & Bankruptcy Code 2016. If a plan can’t be agreed on or no plan is submitted, the companies will move into liquidation.

“It is still early stage,” Girotra said of the interest among global players. “Initially there is always caution on whether this is going to go through, or how smooth it is going to be.”

She expects such stressed deals along with domestic consolidation in the financial services and fintech space to drive merger and acquisition volumes of around $70 billion to $80 billion this fiscal year, with some outbound purchases as well by pharmaceutical and technology firms.

Companies struggling to meet their debt obligations have pushed defaults on bonds and syndicated loans to a record of almost $2 billion so far this year, compared with $494 million for all of 2016, according to data compiled by Bloomberg.

Ashok Wadhwa, group chief executive of Ambit Private Ltd., estimates that about 100 companies are stressed with debt of around three trillion rupees. Even considering a 50 percent haircut for banks, there will be around $25 billion of deals over the next three years, he said.

“It’s a significant new business opportunity,” said Wadhwa, who leads a home-grown investment bank. “A lot of these assets are in the infrastructure space. Pension funds, infrastructure funds and sovereign funds are likely to bid along with Indian companies.”

A joint venture set up by Bain Capital Credit and Indian conglomerate Piramal Enterprises Ltd. expects to complete two stressed-asset deals before March 31, Piramal Group Chairman Ajay Piramal said Aug 1. Investors including Canadian pension fund Caisse de depot et placement du Quebec, TPG and KKR & Co have also shown interest in investing in such assets.

Growing Team

Moelis, which set up its India operations in 2012, added four bankers last year to take advantage of emerging opportunities and will hire three more to take its team to 20 in 2018. Girotra built the India team after previously running the local operations for UBS AG.

The boutique investment bank last year advised India’s Intas Pharmaceuticals Ltd., along with Rothschild & Co, on the purchase of some of Teva Pharmaceutical Industries Ltd.’s assets in the U.K. and Ireland for $770 million. Moelis is ranked 14th globally among merger advisers this year.

“The biggest theme that is playing out is domestic consolidation, but it is a more diversified play than earlier,” Girotra said. “It could be fund raising, acquisitions or strategic divestments.”

— With assistance by Upmanyu Trivedi

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