Funds look to buy out distressed loans before bankruptcy process
MUMBAI: Distressed asset funds and promoters of defaulting companies are coming together to buy out loans before the start of bankruptcy proceedings, as the former sense investment opportunities and the latter race to prevent loss of control.
The Reserve Bank of India on February 12 ordered lenders to begin bankruptcy proceedings against defaulters before the National Company Law Tribunal (NCLT) if they fail to make interest payment within 180 days of missing a payment. This exposes many defaulters to bankruptcy courts by mid-August, posing the threat of loss of control to many promoters. In a recent deal, India Resurgent Fund (IRF), a joint venture between Piramal Enterprises and Bain Capital Credit, invested about ₹800 crore in Chennai-based Archean Chemical Industries Ltd, buying out its lenders, all public sector banks, in a structured transaction. Mint reported on the deal on June 4.
Industry watchers say more such deals are in the offing.
“There is significant deal activity in the pre-NCLT stage,” said Chandresh Ruparel, MD of investment bank Rothschild India. “Defaulting promoters have to find ways to bring in more equity; else, they risk losing control of their assets,” he added.
According to industry estimates, there are nearly 150 firms each owing at least ₹2,000 crore to lenders, which need to be resolved by August, failing which they will be referred to NCLT by the lenders. Industry watchers, however, say a major challenge will be getting all lenders to agree on the terms of a potential restructuring.