Information in the Indian distressed companies landscape has been a pivotal factor in building a strong foundation for envisaged New India. Distressed assets represent the opportunity to purchase operational and good underlying assets, with a potential to turnaround, at attractive valuations. It enables strategic investors to expand capacity in a cost-effective manner. The game changer has been the Insolvency and Bankruptcy Code, introduced in 2016. The Code has given stressed assets resolution a legal structure, definite procedures, and provided a level playing field for domestic and foreign investors. It has established well-defined timelines for the resolution of distressed companies. It denotes a paradigm shift in which creditors take control of assets of the defaulting debtors.
Given the risk involved in investing distressed companies, the IRR is high and there is a potential to earn very high returns.
With a better reporting of NPAs, the liquidity in the NPA market is flush.
Distressed companies allow for a strategic way for vertical or horizontal integration.
Under the Insolvency and Bankruptcy Code 2016, strategic and financial investors can acquire distressed companies by the following mechanisms:
Corporate optimization process of changing the debt and equity composition of the capital structure of the company by rebalancing risks. Some ways of capital restructuring are through renegotiating its delinquent debts, divesting division or businesses to improve the financial standing of the organization and refinancing existing loans thereby reducing cost of capital.