The risks and rewards associated with investing in stressed assets
Panellists at the Mint Stressed Assets Investment Summit discuss the risks and rewards associated with investing in stressed assets and what they are making of the opportunity
Mumbai: In a fireside chat, Shyam Maheshwari, chief executive officer of SSG Capital Management Ltd; and Haseeb Malik, senior managing director, Varde Partners Inc., discuss the risks and rewards associated with investing in stressed assets and what they are making of the opportunity. The discussion was moderated by Shrija Agrawal, national editor, deals, Mint Edited excerpts:
How active are you going to be in the region given the recent developments around stressed assets resolution?
Maheshwari: We are a $4.5 billion platform today. India has happened to be a large part of our investments since 2009. The economy has a tailwind of growth. We have put in resources, talent pool and capital as well as processes. It’s a market you have to work hard for. We have done 14 steel site visits in the last two years but we haven’t concluded a deal in India yet. It takes time but there’s nothing called wasted learning. As a foreign investor we have to continuously work on the process of executing things and we are ready to invest our capital in India.
Out of the 12 stressed asset cases, are you interested in any one of them?
Maheshwari: Yes, we are in the process. It’s more than one out of the 12 cases we are interested in.
Malik: We run a global fund of $13.5 billion and all our investments are evaluated on a global basis. We have a large platform in Asia and Singapore. Today, I do feel a more compelling opportunity to invest time, resources and our own capital in India. India would be a large part of our strategy.
We have seen most of the foreign guys come to India, invest and then leave but we are not one of them; instead we want to build a platform in India. One has to take local expertise and knowledge and that comes from people who have done transactions in India and it’s important to intersect that local expertise with the global one in order to do transactions in India. India has an appeal to global investors and that’s a good part of it.
What is the maximum size of the cheque that you can write for the Indian market?
Malik: As an investor we are understanding the situation for the last three-four months right after the information has started flowing. The cheque size depends on the risk-reward. We are a global fund and I can easily see us investing significant dollars in India. It’s hard to put figures on the upside as it really depends on the fundamentals of the business and how we are actually going to add value to every constituent in the value chain. We have to talk to bankers about it and to the operational sponsors who can help us add value.
You have seen quite a few steel plants but did not end up doing a deal in India. So what are the challenges you are facing in the country? Aren’t there enough good assets?
Maheshwari: Firstly, assets have to be fundamentally sound. Operating assets could have been mismanaged. Operating a completed asset is the first criteria. We thought about the steel cycle and we realized that the government came up with the process which created a flow to steel prices in India. The same thing is happening in China too. Non-operating assets are shutting down. In that context, we had started looking at those assets and at that time the law (Insolvency and Bankruptcy Code) had not been enacted and there was no process of restructuring.
Could you give us some sense of the diligence process, the competitiveness of the work of resolution professionals? How satisfied are you with it?
Maheshwari: It’s a learning process. As I said one has to be in the game to learn the game. We have put the resources and people on the ground. We are paying to learn the game. The process is fine. It’s all about being there and contributing in a positive manner.
What are the challenges you are facing in terms of bidding in the insolvency regime in India?
Malik: It’s not an easy place. It’s a market of patience. Locally you have to have people with experience who can work through. So, I think the lack of experience set and cost of doing business, right infrastructure are some of the constraints. As a fund we have to evaluate these things. India, no doubt, is a great place to invest in as a foreign investor. From our point of view, we have an organization that provides credit and we can also do equity. As a financial investor we have the capability of building the business and exits in this space take care of themselves. One should run the company the way it should be run; therefore business excellence of the companies that we are involved in is the key.
Maheshwari: In this space, entry is defined and exits have to be figured out. Expectations of our investors are similar from us. In equity side you just can’t take a quick buck and then leave. We have a long duration fund of eight-10 years. We need that kind of time to figure out our way. You have to create that process, discipline and risk-reward as an investor and it is not different from what a strategic investor would do.
Why aren’t the big guys like Oaktree Capital coming in and are simply waiting and watching on the sidelines?
Malik: I don’t know why some of our competitors globally are not in India. If you have done three years of work in a sector in the way you value it, you would know the best price to pay for it, get the asset, compete with the strategic and add value to the business. It comes down to your own infrastructure setup so I think global guys might not have infrastructure setup in India and maybe this could be one of the reasons. They do not have 10 years of history of doing business here.
If you were to change two things in the IBC, what would those be?
Maheshwari: Challenges are opportunities. Firstly, one has to be in the game. Our fund is a long duration fund with no leverage. Second aspect is that doing business is not easy. Things that I would like to change in IBC would be the bias for strategic investors over financial investors. It’s very clear on how the committee of creditors think today. Asking Rs500 crore for initial deposit is not possible. One has to think that time is valuable and money is valuable. And I think this would happen over a time period. We are cognizant that every asset is not for us. It’s difficult to assess the liabilities.
If you were to give me some sense of best global practices in terms of insolvency and resolution that can be applied to India, what would that be?
Malik: One has to be very transparent in the process. The continuity and the ability of the process is the key. The timeline is good. Fairness is very important and this has to be proven in India because the outside perception about India is that it takes a long time to complete the whole process despite the right law. Speed, fairness and good transparent process has to come in.
Maheshwari: I am optimistic because the process in front of my eyes has changed in a positive manner. The whole part of foreign portfolio investments (FPI) to invest in debt instruments is good. This has created a level playing field for foreign and domestic funds and much more is required to solve the problem of the mammoth size that we face. There are many things which have ramifications when the company goes in debt. Salaries are not paid, income tax department is after your lives and this cannot be underestimated. The process is improving, creditor rights are recognized. The attitude is changing and this NCLT process is a level playing field in itself.
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First Published:26 Dec 2017, 12:52 AM IST
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