ISO 9001:2015 Certified
closex Call Us 11-23320714, 23721504, ficci@ficci.com

 Upcoming Event
to forge a partnership on Technology Commercialization Initiative, FICCI-AMITY and IC2 Institute University

Stressed assets market can flourish with incentives and price discovery: CEA Subramanian 

The Economic Times , Oct 14, 2020

Chief Economic Adviser K Subramanian on Wednesday said that incentives and a market to discover the price of distressed assets hold the key for the stressed assets market to flourish in India.

Subramanian said that the IBC process is definitely an important step in the right direction, but a few more aspects need to be taken care of.

One of those is the incentives that banks have, especially the PSU banks, he said.

"It is because those who work in the stressed asset market clearly understand that when a company goes into the stress, judgement is clearly involved. The company typically suffers from debt overhang and the fact that new investment by the equity holder may go to debt holders, makes equity holders not make the investment. This leads to the underinvestment problem," he said at a FICCI webinar on 'Investment Opportunities in Stressed Assets in India'.

In such negotiations, Subramanian said, the face value of the debt is reduced, which enables some skin in the game.

"What evolves then is a significant amount of judgement, the ability to price the value of loan with a necessary haircut. It involves taking a hit on P&L statement. There is always a possibility of hindsight bias, which can create enormous risk aversion. If a decision is read as a possible mala fide intent, that can also make bankers skittish in being able to take that judgement," he said.

"But such judgements are very important for the distress market because the loan has to be sold at a necessary hair cut. Given the risk involved in any distressed situation, a potential investor would want a return that would be commensurate to the substantial risk that is involved," he said.

Another aspect Subramanian suggested is the 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, so do corporate bond markets.

India's stressed assets market is estimated at $115 billion.

Subramanian said the IBC is an evolving process and there is scope for making it more efficient. "The ecosystem of creative destruction is a very important part of any economy. If we look at the Indian economy before IBC, while we had entry, the exit process was not enabled well. As a result the credit culture that prevailed earlier was far from salutary," he said.

Rashesh Shah, past President, FICCI and Chairman & CEO at Edelweiss Group, said that India is a great investment opportunity. Even as there is a speed bump, the growth story on a long-term is still underway for the nearly $3 trillion economy, he said.

"A lot of opportunities in India come from savings, consumptions and also from investments. I don't call assets 'stressed'. Assets are not stressed in India, it is the promoters and balance sheets that are stressed. Since IBC came in, a lot of assets found new owners and those assets did very well," Shah said.

Shah said that opportunities do not lie in recoveries but in revival and the IBC code in India is also focused on that.

"Often this revival does not need a new management, operating capability or an overhaul in strategy. It just needs a new capital structure and investments. A lot of projects are stuck at 80-90 per cent in real estate or manufacturing, which require last mile funding. There are a lot of investment solutions to convert these stressed assets to high performing assets. There are tremendous opportunities for investors. All they require is patience and a flexible long term capital," Shah said.

Pavan Kapoor, Ambassador of India to UAE, said that a number of of UAE sovereign funds are invested in diverse sectors in India as highways, construction, affordable housing, telecom, and ports and logistics.

"The government has been making progressive steps to facilitate further investments in stress segments such as infra, construction mining, metals, and gems and jewellery," Kapoor said, adding that India has emerged as the best performing country in South Asia in handling insolvency in the last few years and performed better than many high-income countries in terms of recovery rates.

 

 

Also Read

IBC is an evolving process and there is scope for making it more efficient - Chief Economic Adviser, GoI

CEA Subramanian says 'creative destruction' crucial for Indian economy, IBC has scope for improvement     

Temporary impact on investment flow to India due to govt curbs: CEA     

Temporary impact on investment flow to India due to govt curbs: CEA Subramanian     

Bankruptcy framework needs to be made more efficient for developing stressed asset market: CEA     

Allow trading in bonds from stressed businesses: CEA Krishnamurthy Subramanian     

Chief economic advisor Subramanian bats for more reforms in the bankruptcy law     

Pre-packs insolvency resolution: MS Sahoo panel to submit report in a week     

Temporary impact on investment flow to India due to govt curbs: CEA     

Temporary impact on investment flow to India due to govt curbs: CEA K V Subramanian     

IBC still evolving, can be far more efficient: CEA     

IBC still evolving, can be far more efficient: CEA     

IBC still evolving, can be far more efficient: CEA     

CEA Subramanian says 'creative destruction' crucial for Indian economy, IBC has scope for improvement     

CEA Subramanian says 'creative destruction' essential for Indian economic system, IBC has scope for enchancment     

Temporary impact on investment flow to India due to govt curbs: CEA K V Subramanian     

Insolvency 'pre-packs': A game changer to wind down bankrupt businesses     

IBC still evolving, can be far more efficient: CEA     

IBC still evolving, can be far more efficient: CEA     

IBC still evolving, can be far more efficient: CEA     

IBC is an evolving process and there is scope for making it more: CEA     

IBC still evolving, can be far more efficient: CEA     

IBC still evolving, can be far more efficient: CEA     

CEA Subramanian says 'creative destruction' crucial for Indian economy, IBC has scope for improvement     

IBC still evolving, can be far more efficient: CEA     

IBC still evolving, can be far more efficient: CEA     

Bankruptcy code can better, CEA reveals     

Stressed Assets market can flourish with incentives and price discovery: CEA Subramanian     

IBC still evolving, can be far more efficient: CEA     

IBC still evolving, can be far more efficient: CEA     

IBC still evolving, can be far more efficient: CEA     

IBC is an evolving process and there is scope for making it more efficient - Chief Economic Adviser, Govt of India     

Event:

 Investment Opportunities in Stressed Assets in India