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The participation of domestic institutions in the proposed asset management company (AMC) and alternate investment funds (AIFs) is key to attract foreign investors in buying of distressed assets, says Punjab National Bank chairman Sunil Mehta.
“When some state-owned institutions take the lead, it’s the seed funding that helps in catalysing and garnering more investments from the other private and foreign funds as they see the domestic institutions have more skin in the game,” Mehta said in an interaction with Moneycontrol.
Mehta said several bank chairmen, including state-run banks like State Bank of India (SBI), have shown interest to participate in the total fund. He said “it is critical that we have domestic institutions participate in the upside” post turnaround of the stressed assets — an event he is hopeful of.
Nearly two months after Mehta-led committee first proposed a five-pronged Project Sashakt as an alternate mechanism to push through resolution and recovery of large stressed assets, the operating guidelines of the inter-creditor agreement (ICA) to get all banks on board have been finalised.
The Indian Banks' Association (IBA) will soon circulate it among banks, which are battling a pile of bad loans worth over Rs 10 lakh crore.
Under project Sashakt, the committee has suggested creation of an AMC (10 percent cap per investor) and AIFs (up to 30 percent per investor) to manage the non-performing assets (NPAs), with banks as partners and buyers in the form of private and foreign investors. The ownership structure allows maximum of 49-percent investment for state-owned institutions.
For assets which are between Rs 50 crore and Rs 500 crore, the committee has proposed an ICA to avoid hurdles from smaller lenders. Under ICA, lender with the largest exposure to the stressed account will take responsibility for restructuring that asset. The resolution plan has to be approved by lenders holding at least 66 percent of the debt.
“We had projected that to take care of the stressed assets visible as of March 2018, we would require anything between Rs 90,000 crore to Rs 1 lakh crore over a two-year period to be invested in the AIFs. We are hoping to get some part of it in the first six months…” said Mehta, who is also the chairman and managing director of SPM Capital Advisers.
He says private and sovereign global wealth funds are also looking at investing in the AIFs.
Keeping the Reserve Bank of India’s February 12 circular in mind, the idea was to push through resolution during 180 days, Mehta said. After 180 days, RBI circular directs banks to refer all unresolved NPAs to the courts under the Insolvency and Bankruptcy Code (IBC)
“The Sashakt committee has recommended several AMCs and AIFs to create a more vibrant market. The reason is that while we have ARCs buying assets but we do not have special companies who turnaround the companies. So we plan AMCs which are funded by AIFs and have specialized companies and teams who can work on these assets,” he says.
According to him, if Sashakt had started six months ago, we could have had an AMC and AIF by now.
“A lot of work is (going) on in detailing the contours of the AMC, there is an application process to register the AMC and we also have to get the AIFs, PPMs (private placement memorandums) and a thesis to get the investors on board,” Mehta said.
On the most-troubled power assets worth nearly Rs 1.8 lakh crore, Mehta exudes confidence saying, “In my personal view, the assets have value, there is a mismatch of timing. Demand for power will be there in India, the assets got into a situation because of external reasons apart from perhaps in some cases the promoters could have been more diligent.”
He believes that there is a need to reduce the sustainable debt and need to see the sigh of “positive cashflows”.
“I think we can do it in 3-4 years. Investors need to take a deep dive in it. There needs to be certain time for the investors to do the due diligence…There is a mismatch between buyers and sellers. There has to be more conversations, more due diligence and hopefully there will be more information symmetry, he adds.
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