Vulture funds staying away from bidding for distressed companies

New Delhi: Vulture funds and some strategic buyers are staying away from bidding for distressed firms in the insolvency resolution process, waiting to snap them up at cheaper prices when they go into liquidation, according to details emerging from recent bankruptcy cases.

So far, firms undergoing insolvency have seen limited interest from buyers, and could well see more takers as individual assets are liquidated at the end of the process.

Although the law does not bar creditors from selling specific assets of a bankrupt firm before liquidation, they have been averse to the idea so far, preferring a single buyer for the entire company.

Among the 12 cases that were among the first batch of bankruptcy cases referred to the National Company law Tribunal (NCLT) by the Reserve Bank India (RBI), Jyoti Structures, Monnet Ispat, Alok Industries and ABG Shipyard have received single bids, none of which have been approved by the panel of creditors so far.

Mint has learnt that in some of these cases, the lenders are exploring the possibility of liquidating the firm and then selling its assets as a going concern, to fetch better value. Alok Industries, which has outstanding debt of over Rs20,000 crore, has received a single bid so far, but potential buyers interested in acquiring parts of the company include Reliance Industries Ltd.

There are examples outside the 12 cases as well. Nagpur-based Murli Industries Ltd, which is present in cement, paper and edible oil segments, received initial interest from several potential bidders, mainly keen to acquire the cement division. However, in the final round of bidding, only two bidders made binding offers, with the highest bidder seeking a 80% haircut on the existing loans.

“I strongly feel that creditors should not disclose liquidation value while inviting bids,” said Chandresh Ruparel, managing director of Rothschild India. “Disclosing liquidation values have led to bids being made just above the liquidation mark,” he added.

In some cases, buyers are also looking to build consortia to jointly bid for assets to divide them later. Mint reported on Tuesday that Godrej Agrovet Ltd plans to bid for Ruchi Soya Industries Ltd, which is undergoing bankruptcy resolution, with an eye on its palm oil business. Since Godrej is not interested in Ruchi Soya’s other businesses, it may tie up with others keen on those businesses.

“This is an ideal situation,” says Nachiket Naik, managing director of IREP Capital, which undertakes acquisition financing. “While some may be able to form pre-bid consortiums, others may opt to wait for liquidation,” he added.

“Unlike in past cases, liquidation in ongoing bankruptcy cases will be markedly different… The resolution professionals are expected to effect a more efficient liquidation than what we have seen in the past,” said Anand Bagheria, partner at Singhi Advisors, a Mumbai based investment banking firm. “The resolution professionals will see that maximum value is derived from liquidation and there will be emphasis in selling them as viable units, which in turn will lead to higher interest from buyers and potentially higher recoveries for creditors.”livemint