Jacob Silverman, president, and Varun Gupta, managing director and India lead, of global advisory Duff and Phelps, share their views on the initial set of cases under the Insolvency and Bankruptcy Code, and the company’s plans for India. The firm advises companies on valuation, corporate finance, investigations, disputes, cyber security, compliance and regulatory matters, among others.
IBC is being hailed as a gamechanger. Globally, what has been your experience, and what can India learn from it?
Silverman: I would agree that it is evolving towards many of the governance standards around the world, whether it’s the UK, or how some assets have been dealt with in the US. The law has helped in the creation of value in stressed assets. The valuation activities that surround these assets, particularly in the IBC, are critical, and we at Duff and Phelps can offer an independent view on how these assets should be valued, and facilitate the introduction of new capital sources into the system.
What have been your learnings while valuing distressed assets?
Gupta: We realized that if an asset is operating, it still has significant value. An asset could be operating, but be in distress because they are taking too much leverage, and they cannot pay off that debt. But, that does not mean the asset cannot operate. The difference in value can be very significant compared to liquidating the asset. Because with liquidation, you don’t just have to discount the asset, you also have to reduce the expenses and costs that have gone into it.
Like in a steel plant, you have to reduce the cost gone into erecting and commissioning that plant. On top of that there are dismantle costs and you have to transport assets to where it can be used, and those additional costs have to be reduced from the cost of the asset. This understanding was absent. After talking to other lenders and valuation firms, we were able to come up with a methodology that adequately captures this.
While carrying out the valuation of a distressed asset, the other challenge is lack of information and, whatever information is available, how reliable it is. In general, whenever we carry out the valuation of an enterprise, we have access to management, are able to talk to them and understand what their future perspective is, because at the end of the day, valuation is nothing but a projection of the future cash flow of the business. And unless you have that perspective you cannot get it right.
That has been a big challenge because either the existing management is not around or, if some them are, you are not sure how much you can rely on their projections.
How are institutional investors from the West watching India?
Silverman: The alternative assets industry, who have traditionally invested in healthy and distressed businesses, are always looking for new opportunities in the marketplace that they can capitalize on. And although it’s still early days, my sense is that India represents such an opportunity, particularly with the advent of the IBC, given that there is a sense of stability towards governance standards, compared to the US and the UK. My expectation is that outside interest will increase meaningfully over the next few years by virtue of IBC.
You acquired Kroll recently, which is pretty active in India. What are your India expansion plans?
Silverman: We are very committed to investing more meaningfully in India. As of now we have 300 employees across our 4 offices in India—Mumbai, Delhi, Bangalore and Hyderabad. That is a significant increase from 40 people, two and a half years ago.
By virtue of being able to acquire Kroll’s fantastic practice, by virtue of being able to build a centre of excellence here in Mumbai that supports the rest of our firm, and by virtue of being able to hire incredible talent across many of our disciplines, whether it be valuations, investigations and so forth, we are going to continue to grow, and I would hope that over the course of the next several years, we can see many many more, hundreds of people, if that’s the key metric we think about, to support the client base we have here and around the world.
With regard to our broader aspirations in Asia-Pacific, India will be the largest presence we have throughout Asia.
Source: Livemint, November 11, 2018