In the last 24 months, IBC has been the most telling answer to India’s bad loans mess. Siby Antony, executive chairman, Edelweiss ARC, says despite the government’s and RBI’s efforts to ensure smoother implementation, a level playing field for financial and strategic investors needs to be created.
How did the last two years play out for the resolution process? How is it different from global models?
In the IBC, we are following the UK model where the creditor is in control. In the past schemes for restructuring, the debtor was in control. In that sense, IBC was a paradigm shift and it was a great change. The experience of the last one-and-half to two years has been very good.
One, for the first time the promoter is wary of losing his company if he defaults for more than one year. Two, the timelines have been defined for resolution. More importantly, the government, the regulator and the entire ecosystem are all aligned.
The alacrity with which the government and the regulator have been reacting to make the changes required in the code is great. They have also been very receptive to the suggestions by stakeholders.
The government’s decision to amend RBI’s powers through an ordinance was another great step. Once the 12 cases, followed by another 28, get resolved, all the issues related to the law will settle and the regulations will stabilize. This should take another one-two years. The resolution will be much faster and smoother once this happens.
IBC has succeeded for sectors such as steel an cement. Can it be as effective for other sectors that have not seen much success in terms of resolution?
When we talk of resolution, the quality of the underlying business is very important. In the steel sector there are hard assets and robust businesses. In such cases, IBC will work very well.
In some others, where the underlying businesses model is based on performance, IBC may not be the right platform for resolution. Once they go under IBC, it will be very difficult for them to revive.
I feel that projects, where government concessions are required for operations, are not the right cases for IBC. This would include the engineering, procurement and construction segment, besides roads and power. Once they go under IBC, it will be very difficult for them to revive.
Do you think financial investors will have greater say as resolution applicants when smaller cases are admitted?
So far, it is weighing in favour of strategic investors. Strategic investors will have an advantage because they can operate the companies on their own. But globally, we have seen that financial investors offer a better price and, since they have invested so much money, it will be their responsibility to revive the company. They will bring in experts to run these companies or projects. Skewed preference is not good.
Over a period of time, a valuation system should be evolved so that there is a level playing field for both strategic and financial investors.
Do you think Project Sashakt can work?
On paper, it looks good but there needs to be clarity on who will monitor the pricing of the assets that are put up for sale and in cases where there are no takers how the AMC is expected to absorb the asset and where the money will come from. Who will man the turnaround at the AMC level also needs clarity.
Source: July 20, 2018, Livemint