With an asset base of over Rs33,000 crore, the Edelweiss Group is one of India’s leading diversified financial services companies. In an interview, Rashesh Shah, chairman and CEO of Edelweiss Group, which runs the country’s largest asset reconstruction company (ARC), talks about plans in the burgeoning distressed assets space and the key drivers of growth for the company. Edited excerpts:
What kind of assets are you focusing on in the distressed space?
There are usually three kinds of assets. The first kind are cash flow-generating, operating and viable assets that don’t have enough cash flow to service the debt and repay the loan. A large part of our portfolio, almost 70%, is that. The second are non-operating assets which can be revived if they get additional capital. This forms another 20% of our portfolio. And the third, which is only 10% of our portfolio, are dead assets which have to be liquidated. However very few people understand because when everybody says NPA (non-performing assets), people assume it is the third category.
What has been your strategy towards resolving each of the situations you mentioned?
Most of these assets have too much debt. So you have to cut down the debt. You have to mark down the debt. And finally you have to get some equity infusion and restructure the balance sheet. In the second kind of assets, the balance sheet is broken and the operations are also closed for various reasons. So you have to restart the operations and help the company operationally turnaround as well. Our average acquisition price has been 40-45% of the total deals. I think there are two important things to keep in mind. One is what assets you are buying and at what price you are buying them.
The general impression seems to be that Edelweiss has been very active in closing deals?
We don’t even participate in half the auctions. We only participate when we know the asset well and it is available at a decent price where there is hope of at least some returns. We are increasingly seeing that a lot of these companies now require more cash and they will require a lot more even additional funding lines. And for that having cash power is very important. And now as I said between us, CDPQ (Caisse de dépôt et placement du Québec) and the Edelweiss fund, we have almost Rs11,000-odd crore that we can deploy over 3-4 years. This is the largest cash kitty that is available for buying of assets.
Many global funds are looking to invest in distressed assets in India. How will competition impact you?
Other people coming in is a good thing because this requires a multi-pronged approach. Lot of these international funds will approach this as a private equity business and they will do one or two deals in a year. But our idea is that we will do an average of about 30-40 transactions in a year. So ours is a lot of deals with a lot of banks. So ours is more an NBFC (non-banking financial company) approach rather than a private equity approach. Global funds will take one asset, put in capital, bring in strategic partners, get involved in operations almost like a buyout transaction. I am not so worried about pricing because ultimately there is so much out there that all of us will have enough opportunities.
So there is room for more participants?
We believe capital required for the next 4-to-5 years to resolve distressed situations is about Rs30,000 crore-Rs40,000 crore. We ourselves have lined up about Rs10,000-to-Rs12,000 crore. But the actual money required is three- to-four times more. A lot of these international guys may have the capital but may not have the skill set. So my apprehension is people who have the capital may not have the skill set and people who have the skill set may not have the capital.