Long-term investors keen to buy troubled assets at cheaper prices: Infra experts

According to Chatterjee, banks are keen and receptive to the idea of haircut to get their lives back in order. Also many of the leading private equity funds, leading corporates, and leading long-term investors domestic and foreign are seeing this as an interesting phase to acquire long-term assets at a cheaper price, which would be long-term bet for next 25-30 years if picked up at the right price and right haircuts.

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Murthy says, the company has managed to sell Bengaluru and UP Road Tollways and the fact that they were able to sell these assets shows that there is appetite from very long-term investors the likes of pension funds and sovereign funds.

Murthy says, the game plan of the company is to exit projects when the construction cycle is over and the project is in revenue cycle. Currently, they are left with two assets yet to be sold.

Below is the verbatim transcript of the interview.

Latha: Have you been appointed as IRP, as a resolution professional or, are you more in the nature of an advisory to run stressed companies which banks find themselves willy-nilly owners?

Chatterjee: We have been engaged as a corporate, as a firm. We don’t offer ourselves as individuals.

Latha: I get that but as a resolution professional?

Chatterjee: A professional means as an individual, so, we have IRP professionals within our employment, but our engagement is as a firm as you rightly said to help the entire process of turnaround of these assets.

Latha: What has been the experience so far? I would assume you are managing for power and steel companies because that is the list of companies?

Chatterjee: Our expertise is in transportation sector and power sector. So we are restricting our engagements to only these two sectors.

Latha: How has been the progress of the companies that you are handling now? Is there any issue in terms of suppliers not supplying, any issue of intermediate credit supply from banks?

Chatterjee: On a public forum I am not going to go public about the specific issues of specific turnaround situations. However, let me just step back a little and say there are three stages in the process of this entire resolution of NPAs. The first is to take stock of the future. Assuming that you are taking a haircut, assuming that people are putting in more funds for a turnaround process or to complete a project or to get a mothballed project started, the first part of course is the techno economic feasibility saying how is the future going to look like and to that extent what is the capital structure and liquidity injection required; that is stage one.

Stage two, is then monitoring the use of funds that they are being appropriately used for the specific purposes for which they have been infused and that they are not being diverted to other projects or elsewhere.

The last is the actual physical operation of the asset. As you know, Feedback Infrastructure is pretty strong in our operations and maintenance business. We are one of the largest and leading independent operators of toll plazas in the country, we run power plants, we are engaged in electricity distribution, etc.

So the last stage is that when a bank or a financial institution has acquired a project, the erstwhile promoter has stepped aside, a new promoter has not come in or is gingerly stepping in, the asset needs to be revved up and to run whether it needs to be operationalised on a daily basis, whether it is a power plant that needs to be run or a road asset which requires toll collection, operation and maintenance.

So that is our third offering and I would like to believe that the entire chain, very few firms have the capacity to deliver across all these three rings of this very important chain other than Feedback Infra. So, we are deeply engaged.

Latha: Let me come to the next stage then, are you seeing enough appetite for haircuts on the part of banks and purchases on the part of private equity or other firms?

Chatterjee: You asked probably the most leading question of the day. The answer to both is surprisingly yes. I think banks have reached such a stage where they are in a sense hanging by their eyelashes on a cliff edge. So, any resolution proposition that comes their way is being greeted with a certain degree of enthusiasm.

In fact going so far as to create worry lines because as you know the Synergies Dooray Automotive, the entire process led to a recovery of only 6 percent. Now, that has set a different kind of alarm bells ringing. However, to answer your question, banks are extremely keen and receptive to the ideas of a relevant haircut to get their lives back in order.

So far as the investors are concerned, I am told that many of the leading private equity funds, many leading corporates, many leading long term investors, both domestic and foreign, are actually seeing this as a very interesting phase to acquire long term assets on the cheap which hopefully in the next two to three years with certain policy paradigms kicking in would be a long term bet for the next 25-30 years if picked up at the right price with the right haircuts.

So there is significant appetite from the buyer end also. So, actually it is a very interesting, opportunistic, and happy conference of circumstances and the need is very simple, to cut through all the bureaucratic processes and come to quick decisions. If you linger with decisions, the opportunity just passes you by.

Latha: Do you see yourself as a potential buyer of stressed road projects?

Murthy: Absolutely not. On the contrary we are a seller of road assets. We have successfully sold off two road assets in the recent past, we sold off two power assets in the recent past and we have taken a haircut also. So, deals are definitely going to happen if the asset is good enough and also the promoters have the right inclination to sell off the assets.

However, our focus is on pure construction business and in fact we are not planning to look at any stressed assets being purchased. However, definitely on the other side, that is hybrid annuity and other things, we are looking at positively.

Varinder: Which are the road assets which you are looking to offload and what could be the value of those assets?

Murthy: We have already sold Bangalore Elevated Tollway and Western UP Tollway. Earlier we completed the concession period for one road project called Brindavan Infrastructure in Karnataka. Now we are left with only two road assets, one is an annuity project from NHAI and we were able to securitise the future cash flows.

The other one, unfortunately the fifth road asset is not doing well. So we have gone to the lenders and offered for restructuring the loans which they have done. So as such we don’t have any assets to sell at this point in time, but we don’t have any appetite to buy the stressed road assets.

Latha: What you are seeing is that you have been able to take haircuts and sell some projects, is it?

Murthy: Yes.

Latha: As a neutral observer of the field, do you think the kind of projects that Feedback Infra is managing and other IRPs are in-charge of, you think that there will be buyers for power, for roads, for EPCs?

Murthy: The very fact that we were able to sell shows that there is appetite for long term investor, the pension funds, and sovereign funds. They have appetite, they have deep pockets, they can definitely look at buying these assets particularly once the construction period is over, and the project is in the revenue cycle, definitely it makes good sense for these kind of investors to come on board and it is happening. All this makes a lot of sense to construction companies like that having taken the construction risk, having constructed the project, putting equity in the SPV and all; I cannot wait for 15-20 years to get back my equity.

So my game plan is to see that as soon as the construction period is over, the revenue cycle starts, you should be able to exit from those projects and maybe with those monies enter into new projects because our core competence is managing the construction risk. That is exactly what we are doing and that is why in that direction we are looking at even hybrid projects coming our way as we go forward.

Latha: We have reported ourselves that a lot of investor interest is seen in steel companies. All the three steel companies that were in the first list to the NCLT, but we have not heard so much on power, EPC, and such other sectors. What have you heard?

Chatterjee: Your observation is right. The steel sector is actually coming out of a downturn and is slowly climbing up. So there is obviously and with the restriction on imports and stuff picking up, it is an easier sector to turnaround than the complications surrounding an infrastructure project.

They require far more policy level interventions, for example for a power plant, the issue of gas availability or PPA, the rates at which the discoms are honoring or not honoring their commitment, these are all larger issues which face the more core infrastructure issues and they require resolution far deeper than for some of the pure commodity markets.

Latha: Short point in this nine months which the bankruptcy code gives, are you seeing non-steel companies getting sold off?

Chatterjee: I do because there is a lot of stuff happening in the background in terms of people doing their own due diligence on roads and power assets. So, I suspect if the level of energy right now in the back rooms is that high, I suppose a fair proportion of them will turn out to be deals. That is the hope.