The distressed asset industry, which had gone into a deep freeze right after the outbreak of Covid-19, has began to recover in Q3. Large banks have lined up a string of legacy non-performing assets (NPAs) for sale to asset reconstruction firms (ARCs). The deterioration of household incomes has also led banks to look at the ARC route for retail assets and the activity in this segment is now 30-40% greater than pre-pandemic levels.
On Monday, State Bank of India (SBI) and ICICI Bank place out notices for the sale of their exposures to Action Ispat & Power (Rs 540 crore) and Gammon India, respectively. A consortium of lenders to Jindal India Thermal Power (JITPL), led by Punjab National Bank (PNB), has also sought bids for the project. Earlier, Bank of Baroda (BoB), Axis Bank and IDBI Bank have also run processes for NPA sales, according to sources.
Some of the sales taking place now would have been closed in the initial months of FY21, had the pandemic not halted due-diligence processes. For instance, a foreign bank with a substantial interest in the stressed asset space had earlier bid for 3 energy projects — Coastal Energen, GVK Goindwal Sahib and JITPL. After the pandemic outbreak, it withdrew the bids.
In reality, latency is 1 of the crucial aspects driving the series of bargains suitable now. Aswini Sahoo, executive vice-president and chief investment officer at Asset Reconstruction Company (India) (Arcil), stated, “There are deals that should have happened in the early part of this year which have now got bundled together in the last few months. We will see some more large names in the power sector, which could get closed in the next quarter.” The deal closures in the subsequent quarter can be place into two buckets, Sahoo added. One bucket is that of the corporate circumstances and the other is that of modest and medium enterprises (SME) and retail. Deals up to Rs 5,000 crore could be noticed in the subsequent quarter, with Rs 2,000 crore in the retail and SME segment and the rest in the corporate segment.
Another function of some of the asset sales taking place now is the presence of a promoter prepared to settle the account. The JITPL auction is getting held below a Swiss challenge procedure right after the consortium received a binding proposal of settlement from the corporation. Action Ispat is understood to have attracted bids from an ARC and there as well, a Swiss challenge is getting run.
A leading executive with a different ARC stated that larger bargains are most likely to choose up from right here on and there are mostly 3 categories of bargains getting created. “The deals by stressed asset funds through ARCs had also frozen up because investors were not able to take a view amid the pandemic. The second type is where you have a small amount which is being settled by the promoter through the ARC route,” he stated, adding, “The third type of deal, which we expect will now pick up, is in the retail space.” These portfolios getting presented by banks variety involving `300-2,000 crore and there is a mix of secured and unsecured loans.
The finish of the moratorium and the restructuring window could also open up space for NPA sales in 2021, stated Sanjay Tibrewala, chief executive officer, Phoenix ARC. He observed that earlier, retail sales had been more sporadic and in the final couple of months, there has been a 30-40% enhance in action on retail sales by banks. “We could see a lot more deals happening next year because the moratorium has come to an end and there are not too many cases of restructuring. So there will be only two options — either these accounts will be sold to ARCs or banks will start recovery actions themselves, whether through IBC or Sarfaesi.” While recovery action can be carried out in parallel, asset sales could be a viable selection for banks, he added.
Asset pricing, as well, could enhance in 2021, according to some executives. Jyoti Prakash Gadia, managing director, Resurgent India, stated, “In the next year, the market is expected to stabilise, which will help in arriving at a proper pricing for the assets.” This, he added, will lead to more transactions taking place, especially in relation to these projects which are creating revenues and are indicating affordable viability, like these in the infrastructure sector.