Most investors allocating 100 million to distressed deals


MUMBAI: With several stressed assets up for grabs in recent times, nearly 60 per cent of investors in India and abroad plan to allocate over USD 100 million to distressed deals, according to CII-PwC report. PwC conducted a detailed survey among private equity funds, asset reconstruction companies and strategic investors, both in India and abroad-to collate investor perspectives. Around 60 per cent of respondents said that they are likely to allocate more than USD 100 million to distressed deals-which is significantly above the average M&A deal size over the last decade.

India has seen M&A activity in excess of USD 120, 180 and 345 billion over the last three, five and ten years respectively, representing a CAGR of 13.2, 13.7 and 4 per cent for the respective periods. At the same time, inbound M&A accounted for 25, 23 and 29 per cent of the overall foreign direct investments into the country in the same period. M&A in FY18 alone accounted for 6 per cent of the aggregate gross capital formation. It is pertinent to note that the growth in value of M&A deals in Q1 FY19 was nearly tenfold as compared to the same period last year, while GDP registered a 7.3 per cent growth over last year.

The enactment of the Insolvency & Bankruptcy Code 2016 (IBC) has caught the attention of domestic and foreign investors who are now looking at the distressed asset space in a new light. An astounding 83 per cent of survey participants were of the view that the introduction of IBC is the most favorable recent amendment in the tax and regulatory laws aiding investments in the Indian distressed asset space. Nearly 45 per cent of investors believe that the top challenge for distressed asset investments is the uncertainty in legal processes. 80 per cent of investors surveyed had a significant bias towards distressed deals in the manufacturing sector and 85 per cent of lenders believe that that major operational creditors should not be included in decision making, in the committee of creditors.

The IBC has resolutely tilted the scales in favor of financial creditors. Distressed assets – up for grabs through the IBC – have captured the attention of a host of parties including large business houses, multinational corporations and private equity funds. More than 80 per cent of investors surveyed by PwC had a significant bias towards distressed deals in the manufacturing sector spanning industries such as metals, chemicals, pharma, cement and discrete manufacturing. More than half the investors surveyed also evaluated deals in the infrastructure, power and real estate sectors.

The findings of this report indicate that M&A is not very effective for certain types of industries which have significant regulatory uncertainty or prolonged sector headwinds. For other industries, the report notes that it is only some, not all, kinds of M&A behavior that generally leads to higher value creation than organic growth. Competition Commission of India (CCI) has till date approved 98 per cent cases without suggesting remedies and only 2 per cent cases where remedies have been provided for, CCI Secretary Smita Jhingran said at the Mergers Acquisitions and Restructuring Summit 2018 organized by CII here.

She highlighted the importance of timely review of combinations by the regulatory authorities, lest they will cause far more economic costs to the nation down the years. Highlighting the international cooperation and involvement of CCI with international anti-competitive regulators, she explained how India is aligned to various international laws to ensure smoother approvals of global mergers and deals involving multi-jurisdictions. PTI