Money & Banking

‘Financial creditors must balance the needs of other stakeholders’

Thomas Abraham Bengaluru | Updated on July 10, 2018 Published on July 10, 2018

SRISHTI DHIR, President, Alchemist Asset Reconstruction Company

 

 

 

Srishti Dhir, President at Alchemist Asset Reconstruction Company, believes that the Insolvency and Bankruptcy Code is a game-changer for the industry. Talking to BusinessLine, she said that following some big restructuring deals and managing a slew of successful exits under the Insolvency and Bankruptcy Code, the Delhi-based company is expanding in a significant way. Excerpts from the interaction:

With so many companies going under liquidation, are there enough takers in the market?

Several companies are being referred to NCLT under IBC, but not many are going to be able to have viable resolution plans. The larger companies have had far greater interest, but for the small and medium companies, it is going to be very difficult to find takers, and interested parties may be looking for deep discounts.

The new ordinance, which allows promoters of MSME companies to bid for these companies themselves, may help to find viable resolution plans. There is a significant waste of productive assets when a company goes under liquidation, especially if operations need to be closed, workers lose jobs and government loses tax revenue.

However, there have been some attempts to sell companies as a going concern under liquidation, but the jurisprudence has yet to give clarity on this issue.

In your view, is the law balanced in favour of all stakeholders?

The decision-making has been left to financial creditors. Previously the owners/promoters used to be in control of the fate of the distressed companies, and with the new Act, the pendulum has swung heavily in favour of the financial creditors. There are, of course, other stakeholders in the company, such as employees/workers, operational creditors, the government and shareholders. However, financial creditors may be in the best position – they have the expertise, experience or background after owner/promoters to take decisions for the company. Moreover, they would have invested in the company by way of debt which is not supposed to be the risk capital. But in a financially-stressed company, the creditors’ lending is at risk, and it is fair to give them some control over decision-making.

However, the financial creditors should be responsible members of the COC, and must try to balance the needs of other stakeholders while taking decisions.

What are Alchemist Asset Reconstruction Company’s strengths? Walk us through some of your big deals.

Alchemist ARC’s main strengths are qualitative analysis of assets, companies and cash flows at the time of acquisition, as well as a strong legal and resolution team. We are backed by sponsors such as Dhir and Dhir Associates and DMI Finance and our Chairman is Pratip Chaudhuri, former chairman of SBI. We aggregated 75 per cent of the debt of a textile company with total outstanding dues of ₹950 crore for ₹140 crore, with approximately 50 per cent cash contribution and 50 per cent SR contribution.

Since we had a significant stake acquired at a substantial discount, we have entered into an eight-year restructuring on the basis of techno-economic viability studies carried out by independent consultancies.

We also aggregated 92 per cent of the debt of a hotel company with a paper unit having principal outstanding dues of ₹300 crore for ₹180 crore, with approximately 15 per cent cash contribution and 85 per cent SR contribution. We have entered into an eight-year restructuring on the basis of the current cash flows assuming a reasonable improvement in the next few years. The restructuring enables us to generate a decent IRR, while at the same time leaving value in the business for the promoters/owners.

The Mumbai bench of the NCLT had, a couple of weeks ago, said that the provisions of the November 2017 ordinance on eligibility of defaulting promoters bidding for their stressed companies cannot be applicable to cases where insolvency proceedings had started before its promulgation. Your views on this issue.

It was very fair for the bench to take a decision that retrospective effect of law should not be allowed.

However, it should have considered the practical aspects that many of these cases may have already completed the IBC process on the basis of the ordinance and some decisions may already have been taken. This might lead to a lot of litigation, which could otherwise have been avoided.

What are your plans, going forward?

Alchemist ARC plans to double its portfolio from ₹5,000 crore to ₹10,000 crore of gross NPA portfolio this year. It plans to directly participate in the IBC process to acquire and restructure companies undergoing financial stress. Alchemist ARC will ensure a financial and operational turnaround for these companies using its experience and expertise in this sector.

Do you intend to raise capital for your expansion needs? If yes, when, and how much?

Yes. We are in the process of raising funds from multiple sources. Bank financing is one; we are tying up additional financing from banks. We are also in the process of privately placing NCDs. We are also conducting another round of equity funding. We have already had three rounds of equity funding since 2012 when we raised funds from DMI Finance and Al Zawawi Group of Oman, among others.

Which are the sectors in which you are now present? Do you intend to expand your presence into other sectors?

We are present in hospitality, real estate, all kinds of manufacturing (textiles, iron and steel, pharmaceuticals and sugar). We have a very diverse portfolio. We are looking at focusing on four or five sectors from this financial year onwards. We are also on a recruitment drive, and are trying to expand our teams looking after business development, deal evaluation and legal affairs.

Published on July 10, 2018

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