WL Ross & Co. Llc, the private equity firm controlled by billionaire investor Wilbur Ross, is in talks with bankers to assess stressed companies in which creditors are pushing for a change in management, according to two people familiar with the development.
Ross, among other foreign and domestic investors, sees an opportunity in investing in assets that are troubled, but can be revived with capital infusion and, in some cases, a change in management.
The sale of stressed assets are being pushed by banks that are trying to bring down the level of bad loans on their own books.
“They (WL Ross & Co.) have met lenders and promoters to assess a few situations and they are seeking to do transactions before it reaches the strategic debt restructuring (SDR) phase. They are sitting with their bankers and are working in some situations where they can also look to carve out businesses,” said one of the two persons mentioned above.
The person added that WL Ross, which has the reputation of being a turnaround specialist, is engaged in discussions on more than one asset. He declined to name these companies.
An e-mail sent to Wilbur Ross on 24 February and phone calls to his office were not answered.
Launched in 1997, WL Ross had invested more than $11 billion until July 2015, according to its website. The fund has holdings in 166 companies across 14 sectors.
WL Ross made its first investment in India way back in October 2006, when it acquired OCM India Ltd for $37 million in cash. The company has being buying into textile firms globally since 2003.
WL Ross acquired OCM India from the company’s lenders and Asset Reconstruction Co. (India) Ltd.
In 2008, WL Ross acquired a 27% stake in low-cost carrier SpiceJet Ltd by investingRs.345 crore.
The firm made a profitable exit from the investment in two years’ time by selling its stake to the Kalanithi Maran-owned Sun Group, which also has since exited from the airline.
Now, after a five-year gap, WL Ross is looking at Indian stressed assets again.
“They have previously invested in India but they had stopped doing it… with newer opportunities being created they are definitely in the market scouting (for) assets,” said the second person.
“They are not looking at infrastructure as a sector, they are mainly focusing on manufacturing,” the person added.
Global funds specializing in stressed assets have started to look at India for investment opportunities as banks and corporate houses try to pare bad loans with offers of equity and asset sales.
On 5 January, Mint reported that Los Angeles-based Oaktree Capital Management Lp, with more than $100 billion in assets under management, had been evaluating deals.
Other funds such as Hong Kong-based SSG Capital Management and Apollo Global Management, a global fund active in the stressed asset space, have also become more active in India. Apollo Global is already present in India through a joint venture with ICICI Venture, called AION Capital Partners.
“There is a huge opportunity in the distressed segment and we are expecting a fair bit of activity to take place during the coming financial year. Also the budget tone made it very clear that the government is focused towards cleaning up the (banking) system and let new investors come in and buy these assets,” said Siddharth Shah, partner, corporate and funds, at law firm Khaitan and Co.
Shah added that infrastructure, manufacturing and other sectors that have been languishing are witnessing interest from special situation funds and private equity funds.
As of September 2015, stressed assets, including restructured assets, were estimated at 11.3% of total advances at banks.
This number may rise as the Reserve Bank of India (RBI) pushes banks to clean up their balance sheets.
One of the provisions introduced by RBI to facilitate this clean-up is the SDR scheme, which allow banks to convert debt into equity and change the management at a defaulting company.
Since June 2015, when the SDR provision was introduced, lenders have converted debt to equity in a number of firms, including Electrosteel Steels Ltd, Ankit Metal and Power Ltd, Rohit Ferro-Tech Ltd, IVRCL Ltd, Gammon India Ltd, Monnet Ispat and Energy Ltd, VISA Steel Ltd, Lanco Teesta Hydro Power Pvt. Ltd, Jyoti Structures Ltd and Alok Industries Ltd.
In some of these cases, lenders have initiated conversations with global private equity funds and distressed asset funds. No deals have yet been closed.
“We are witnessing a lot of enquiry by the global funds but none of these deals are fructifying at the moment. Of the 17-18 SDR cases that have come into the market we haven’t really seen investors readily investing in them. There is still time before these deals start happening,” said Dinkar Venkatasubramanian, partner, transaction advisory services, at EY.