Foreign fund sees big opportunities in Indian banks' stressed assets
Foreign funds see a big opportunity in India’s stressed asset market over the next one year. Foreign funds are hoping that Indian Banks will auction most of its stressed assets with a steep haircut as the pressure on the recovery is high. In a conversation with ETBFSI, Sharik Currimbhoy of Goldstein, Roth & Co, said that they are currently mandated to raise over $2 billion from various clients to pursue distressed assets.
Pandemic has added more to the stressed assets of Indian banks. Once the moratorium is lifted banks are expected to have more defaults on their books. Experts are seeing the second wave of NPAs. Foreign funds are also keeping their funds ready foreseeing the potential stressed assets at a lower rate.
“Stressed assets are a lucrative proportion. We are observing the second wave of NPAs in the Indian Banking sector. We also expect banks will go for a significant haircut as banks are going through a recovery pressure. Bankers have already accelerated recovery processes and they will be selling their assets desperately over the next 12-18 months. In one of the cases related to the manufacturing sector-top bankers took more than an 80% haircut, said Sharik Currimbhoy, Chairman and Managing Director of Goldstein, Roth & Co.
He also added that they have a mandate to raise $2 billion from various clients to pursue distressed assets.
On average bankers take anywhere between 30-35% haircut but considering the current situation bankers are expected to lose more.
Stressed Asset is an opportunity
Large private equity institutions, such as Blackstone and sovereign funds are expected to invest high in the stressed assets business. Experts are hoping for a few transactions in billion dollars and more in the range of a hundred million dollars.
“We foresee opportunities in both stressed and distressed assets. Stressed companies will be issuing paper at high coupons of 16-22% because they are sound businesses and facing liquidity issues due to current circumstances.
But, the assets which are totally underwater will collaborate with funds and Indian partners to take over, recapitalise, and turn around the asset or make it operational,” said Currimbhoy
The funds are seeing big opportunities in the infrastructure sector. They see a large number of assets in the road, power, and real estate sector. Also, ports and energy-related businesses will too have a discount given the current crisis. Recently, the Adani group acquired a controlling stake in GVK Airport Developers.
India’s Stressed assets market
India’s stressed market has flourished after the implementation of the insolvency and bankruptcy code (IBC). According to a 2019 report published by Alvarez and Marsal, India’s stressed asset market is more than $150 billion and seven top investment firms had raised $7 billion till last year.
“The entry of global funds will strengthen the space as they will not only bring the capital but also best practices which will be beneficial for the Indian companies," added Currimbhoy
Recently, Chief Economic Adviser K Subramanian said that the stressed assets market will flourish in India. He also added that there is a need for a market for price discovery of the stressed assets as without that "the process of taking the hair cut itself becomes difficult." Distressed funds play an important role in such cases, Subramanian said.