Skip to main content

RBI order may bump up ARCs valuations

By
RBI order may bump up ARCs valuations
The Reserve Bank of India’s (RBI’s) dispensation to allow asset reconstruction companies (ARCs) to hold more than 26 per cent stake in distressed assets might bump up the valuations of the ARCs for foreign investors
The rule puts ARCs in a commanding position in deciding how an asset resolution should happen, something they could not do so far because of their limited shareholding. Technically, the latest rules give ARCs freedom to become owners of the stressed firm and drive the resolution process
“We will now have better level of control and more say in how the company concerned should be operated,” said Vinayak Bahuguna, managing director and chief executive officer of Asset Reconstruction Co of India (ARCIL). “Moreover, it gives ARCs the ability to maximise returns by increasing shareholding and selling the stake off in case a company turns around.”
The central bank, in a notification on its website on Thursday, did not specify an upper limit that an ARC can hold for debt converted into equity. “ARCs with net owned fund of Rs 100 crore on an ongoing basis are exempted from the shareholding cap at 26 per cent of postconverted equity of the borrower company,” it said.
The Reserve Bank of India (RBI) directive would also make domestically incorporated ARCs attractive to foreign funds looking to acquire a share of the pie in India’s Rs 10-lakh crore stressed assets markets.
The scope of business would accelerate in the coming days, especially with the bankruptcy code in place. Now that clauses have been amended to keep defaulting promoters largely away from the resolution plan, the haircut taken by banks in each case would also be deep, according to analysts, and that should be advantageous to ARCs.
The ARC business, in which 100 per cent foreign direct investment is allowed, operates in a joint venture model. Foreign funds with deep pockets pick up stakes in domestic ARCs to buy local stressed assets.
With the RBI’s directive, ARCs become an acquisition target, said a senior executive with an asset reconstruction company.Bahuguna, however, said earlier too there was no problem in getting foreign capital in the distressed asset business space.
On the RBI’s other stipulation that at least half of the board members should be independent, Bahuguna said that was already the case in all ARCs.The central bank said the shares acquired after conversion of debt should be marked to market at least once a month.
In addition,“The ARC shall explore the possibility of preparing a panel of sector-specific management firms/individuals having expertise in running firms/companies which could be considered for managing the companies.”These conditions, along with a minimum of Rs 100 crore of net owned funds, are already adhered to by all ARCs.
The Business Standard, New Delhi, 25th November 2017

Comments

Post a Comment

Popular posts from this blog

Govt’s gamble on GST cuts: What do the bond and currency markets signal?

By
  It’s not just humans who suffer from cognitive biases; markets do too. Interestingly, different financial markets exhibit distinct biases, each interpreting events through its own prism of prejudice. Take the recent announcements on GST reforms: equity markets have chosen to view them through the lens of growth, while bond and currency markets are focusing on potential macroeconomic risks—fiscal pressures and current account challenges. So, which lens captures the true pulse?Equity markets may be right in expecting GST reforms to revive consumption, which has remained lacklustre for a while. But the key question remains—will this revival come at the cost of broader macro stability?It is well known that consumption stocks have rallied since the GST rationalisation announcement. But what about bond markets? What signals are they sending since this rejig was announced from the ramparts of the Red Fort?The signs aren't encouraging. Bond prices have slumped and yields have surged sinc...
Post a Comment
Read more

Luxury carmakers urge clarity on GST rates to boost festive season sales

By
  A clear picture regarding new GST rates at the earliest will help the overall auto industry, including the luxury car segment, to regain momentum in the ongoing quarter, which generally sees enhanced sales on account of the festive season.The high-powered GST Council, chaired by Finance Minister Nirmala Sitharaman, will meet on September 3-4 to discuss moving to a two-slab taxation.In an interaction with PTI, BMW Group India President and CEO Hardeep Singh Brar said the recent speculation about the change in GST rates has caused uncertainty in the minds of consumers.Consumer interest and demand is strong, but they (prospective buyers) have adopted a wait-and-watch approach, and this delayed decision-making is impacting new vehicle sales at a certain level, he noted."Expediting clarity on GST rates is essential to get back to speed and ensure the auto sector's contribution to economic growth during this quarter is robust," Brar stated.He also hoped that the sustainable p...
Post a Comment
Read more

Sebi proposes tighter norms for green bond third-party reviewers

By
  Sebi on Friday said it has proposed to tighten the norms to appoint independent third-party reviewers or certifiers for green debt securities to align them with requirements for other ESG-linked bonds.In a draft circular, Sebi said that the current norms for green bonds, introduced in February 2023, lack detailed requirements around reviewer independence, conflict of interest mitigation, and disclosure standards that are now in place for other ESG-linked securities under a June 2025 circular.The regulator's latest proposal seeks public comments on a revised framework that would bring parity by incorporating comprehensive criteria for third-party certifiers of green bonds on non-convertible securities.Under the proposed norms, issuers of green debt securities will need to appoint reviewers who are independent of their management, directors, and key managerial personnel. These reviewers will be remunerated in a way that prevents any conflicts of interest and possess relevant expert...
Post a Comment
Read more