Under pressure from banks, India Inc resorts to fire sale

With banks racing against time to clean up their balance-sheets by March 2017, a heavily indebted India Inc has been forced to go on a fire sale of its assets.

Since January, assets worth ₹1.50 lakh crore have been sold or are being put on the block. Essar and Reliance Group lead the pack with recently announced plans to monetise assets worth ₹85,000 crore and ₹11,000 crore respectively; others, including GMR and Jaypee Group, are being forced to sell profitable businesses to pare debt.

Market watchers say this could be the best news in years for the banking sector, reeling under rising non-performing assets. “Large corporates resisted sale of non-core assets on the pretext that they can extract more value tomorrow than today,” a top public sector bank official said.

“But with banks refusing further financing till loans are repaid or more equity is brought in by the promoters, the corporates have got the message,” the official added.

Banks have been scrambling to improve their bad debt position since the RBI under former Governor Raghuram Rajan issued a diktat to clean up their balance-sheets by March 2017. In turn, banks began to push corporates to pare thedebt they had piled up over 5-10 years.

“Banks have increased pressure on defaulting promoters to make good their loan repayment commitments by raising money through sale of stakes in their profitable ventures.” said a Motilal Oswal analyst.

“The Essar-Rosneft deal will send a message to other debt-burdened promoters to de-leverage. We believe NPA recognition for large accounts has peaked; we expect a gradual resolution hereon,” the analyst added.

Promoters of companies selling non-core assets to reduce debt can now pitch in with more equity, which will convince banks to lend further to their core businesses or to ventures into new sectors. But for that to happen, the deals announced have to be completed.

A number of asset sale deals announced are work-in-progress, and there is no certainty that the promised money will flow into the banking system.

Rakesh Valecha, Senior Director and Head, Credit Market Research, India Ratings, said: “With these asset sales, you will see some correction as far as leverage and associated issues are concerned for the seller. What remains to be seen is how much of the cash inflows will be used for debt reduction and whether that can be serviced from the cash flows of the residual entity.”

A number of corporates told BusinessLine on condition of anonymity that they would have preferred a meaningful restructuring of loans instead of having to sell their prized businesses.

“Stressed assets are not always the result of mismanagement or funds diversion; many are in this situation due to difficult global market conditions or one-time events, such as cancellation of mines and delayed environment approvals. Even viable companies are not being permitted to restructure,” said an executive of a Mumbai-based conglomerate.

For now, though, all eyes are on the next big asset sale. Ananda Bhoumik, MD and Chief Analytical Officer, India Ratings, said: “There is a lot more action expected in the next two years.”

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