Opportunities galore in stressed assets for patient capital: VCCircle LP Summit

There are large investment opportunities waiting for cash-rich strategic and financial investors, who are willing to acquire a pool of stressed assets in India, said panellists at the VCCircle Limited Partners Summit 2018 in Mumbai on Tuesday.

India has estimated its stressed assets at over $150 billion, but experts have said the actual numbers could likely be higher. Last year, the Reserve Bank of India had asked banks to initiate insolvency proceedings against 12 defaulting companies, including Bhushan Steel, Jyothi Structures Ltd, Monnet Ispat and Energy Ltd and Electrosteel Steels Ltd, among others.

There has been a pile of assets across steel, thermal power and infrastructure. Even as lenders push for sale and a large number of new investors, including pension funds and global financial funds, are now actively looking at India, valuation mismatches between sellers and buyers have meant that fewer deals have materialised.

The panel, discussing the “stress” in stressed assets, was moderated by Krishnava Dutt, managing partner, Argus Partners. The panel included Koushik Chatterjee, group executive director at Tata Steel Ltd, Harish Chander, executive vice president at Edelweiss Financial Services Ltd, Parth Gandhi, senior partner and managing director, AION India Investment Advisors Pvt. Ltd, and Sharad Bhatia, managing director at Multiple Alternate Asset Management.

Panellists were of the view that knowledge of the assets in question, the potential risks associated with them, and the value they bring to the investor are critical parameters that will decide the fate of the assets.

Tata Steel, which is reportedly close to buying the assets of debt-laden Bhushan Steel, is in a position to benefit from the consolidation in the steel sector. Bhushan Steel had said on Monday that it had received bids from the steel maker, besides JSW Living Pvt. Ltd, and a consortium of its own employees.

“We still do not know the outcome (of the bid). Assessing the underlying value of the asset is important and being a strategic player in the steel industry, in that region, in that state, we have been looking at it for a long period of time,” Tata Steel's Chatterjee said during the panel discussion. He was answering a question on being the highest bidder for Bhushan Steel’s assets.

“Knowing the asset well is important, whether it is coming cheap or dear is irrelevant,” Chatterjee added.

Gandhi of AION India said there were interesting opportunities in mid-sized assets, and funds having sectoral knowledge, experience and a specialised team will have an advantage to help rebuild the stressed business. Inability of a large number of strategic companies to bid is also an additional opportunity for financial investors, he said.

Firms with patient capital and the ability to hover around will benefit from the assets that are up for sale. The opportunity for buying assets is growing, Chander of Edelweiss said, adding prices or valuation of many assets, however, are still not factoring in any unassessed risks in transaction.

Bhatia of Multiples said investors need to work out the risks associated with assets and factor that in the bid price.

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