Bankruptcy will dictate M& Atrend in 2018

Bankruptcy will dictate M& Atrend in 2018

On the first day of the year when most holiday, Sourav Mallik, joint managing director at Kotak Mahindra Capital, is chalking out his mergers and acquisitions (M&A) strategy sitting at his BandraKurla Complex office in Mumbai.“We expect domestic consolidation to be the larger M&Atheme this year

Especially with the new legal process for bankruptcy, home grown firms are better placed to deal with it,” he said.According to the data available with Thomson Reuters for deals up to December 12, 2017, India had M&Aworth Rs 55.9 billion last year.Of this 33 per cent, worth Rs 18.4 billion, was in the telecom sector as the launch of Reliance Jio services at a record low price disrupted the industry.

This includes the proposed merger of Vodafone India and Idea Cellular that is valued at Rs 11.6 billion.Besides, last week Reliance Jio also announced the acquisition of Anil Ambaniled RCom´s wireless assets for an undisclosed amount.But there is a much bigger opportunity now lying across multiple sectors in 2018 as 12 cases mandated by the Reserve Bank of India (RBI) for early bankruptcy proceedings are in an advanced stage of auctioning assets at NCLT courts.

These 12 cases have NPAs worth about Rs 2 trillion. At estimated an 50 per cent haircut by banks it could be a Rs1 trillion or Rs 15 billion M&Aopportunity. The cases at NCLT are also piling up since the Insolvency and Bankruptcy Code (IBC) came into effect.Banks have Rs 10 trillion in stressed assets — Rs 7.8 trillion of bad loans and Rs 2.2 trillion of restructured ones.

“Stressed assets are in multiple sectors, so M&As are expected to happen in multiple sectors, and hence the dominant M&Atheme is expected to be bottomup and not topdown,” said Mallik.In investment banking parlance a bottom up approach means M&Atriggers being company specific and not sector or theme specific, which is considered a top down trend.

The impact of the IBC is, in fact, much larger and goes beyond the cases that are expected to reach the NCLT.“With debt providers of stressed assets pushing for change of control, we will see an impact on the corporate psyche and that will result in far bigger corporate assets which will be available for acquisition as managements try to bring in financial discipline and get out of noncore assets to work with manageable debt,” said Ajay Garg, managing director at home grown investment banking firm Equirus Capital.

Indian promoters for long had an upper hand in dealing with lenders.This saw multiple players in many industries operating at suboptimal scale and low return on investment.While consolidation in telecom is in progress, there are many other industries waiting for it.

For instance, there are about 25 firms each in asset management, life insurance and general insurance businesses.“While we expect the broader trend of deleveraging to continue this year, we can also expect conglomerates giving a hard look at exiting noncore businesses and at the same time bulking up for growth through M&As in their core areas,” said Sanjay Nayar, chief executive officer at KKR India Advisors.

The Business Standard, New Delhi, 2nd January 2018