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Alternative Investments and Special Situation Opportunities in India
- 1. Special Situation Investments in India COVID Pandemics and Economy Fallout
- 2. Distress Investors on Pandemic & Economic Fallout 01 02 03 04 05 06 01 LOCKDOWN is UNPRESCEDENTED 03 Stress on the businesses going to increase a lot 05 Crises would be much more than justAutomobile,Tourism, Aviation, Hospitality, etc. 02 Operations of the Companies have come to Halt 04 Going to impact financial & operational deals across sectors/regions 06 MSME will also going to get impacted as the overall demand in Economy falls
- 3. Insolvency and Stress in the Economy 07 Lot of local funds, ARCs will partner global cash rich funds and investors 06 Banks would want to get βpile of the NPAβ off the balance sheet 05 Investors will capitalize the distress opportunities at discount 04 Will impact Bankβs balance Sheets 01 Fresh insolvency proceedings suspended up to 1 year : Govt. 02 Not classified as insolvent but the STRESS does EXIST in organizations 03 Organizations will face trouble in repayment of debt 05 06 07 01 02 03 04
- 4. Return Expectations and Valuations Once the economy recovers, Returns can be much more than expectations An opportunity for such funds to enter at lower pricing ARCs & distressed funds will work around those assets But banks have to let go distressed assets to clean books; Banks will get market clearing price or throwaway price for Distressed Assets COVID Pandemic will lower the Equity Upside expectation Timeline Timeline for New Investments Difficult to comment, considering lot of uncertainties on period of lockdown and understanding how deep the situation is Delay in Existing Deals in IBC β’ NCLT has restricted hearing and taking only urgent hearings. β’ Post lockdown we might see more hearings
- 5. SARFAESI ACT Act accords the same powers for ARCs/Distressed Funds as are available with the lenders Restructuring/Settlement of debts of the borrower Enforcement of security interest as above Change in the business and management of the borrower Sale or lease of a part of or the whole business Securitization: Transfer of Financial Assets to ARCs/Distressed Funds
- 6. Strategies β’ Liquidity Mismatch & Bridge Financing β’ Debt Restructuring & Refinancing β’ Acquisition Financing β’ Growth Financing β’ PE Takeout β’ Portfolio or Debt Buyouts β’ OTS Settlement and EPC Claims Structure of Financing β’ Plain Debt or Structured Debt β’ Debt plus Equity Upside β’ Debt plus Redemption Premium β’ Issue of transferable NCDs β’ Buyouts or Equity Financing β’ Trading of stressed Bonds Structured Financing
- 7. DEBT RESTRUCTURING β’ Organization facing cash flow problems & financial distress β’ Restructure Debt to reduce and renegotiate its debt payable, β’ involves a reduction of debt and extension of payment terms, β’ To improve or restore liquidity and to continue its operations β’ Usually less expensive alternative to bankruptcy; avoids Insolvency, liquidation β’ Methods: Debt-for-equity swap, one time settlement & Haircuts BRIDGE FINANCING β’ Interim financing raised by companies for short-term position until a long-term financing is arranged β’ In form of loan or equity investment β’ By Alternative investment funds / venture capital firm provides β’ Involve high interest rate ACQUISITION FINANCING β’ Capital obtained for buying another business or company β’ Increase size of operations and economies of scale β’ Apart from loans, lines of credit; Debt security, and Promoter financing are other types of acquisition financing β’ Lender analyzes the target companyβs projected cash flow, profit margins, and liabilities β’ Analysis the financial health of both acquiring company and the target company is pre-requisite PORTFOLIO BUYOUTS β’ Investors would buy distressed loan portfolio from banks/NBFCs at discount β’ Investors purchase portfolios at steep discount β’ expecting borrower companies will emerge from stress β’ Once the economy recovers, Returns can be much more than expectations
- 8. VALUE CAPRISE PRIVATE LIMITED Mumbai: 8th Floor, Empress Nucleus, Andheri Kurla Road, Andheri East, Mumbai 400069 PUNE: Office No 11, Level 3, Kamala Regency, Opp Petrol Pump, Dnyaneshwar Paduka Chowk, F C Road, Pune β 411016 E: manan.jain@valuecaprise.com M: +91 9819316765 W: www.valuecaprise.com