Power, infrastructure and steel together make up about half of the Rs 4.1 trillion in stressed assets. Power sector accounts have the largest share, and resolution in this sector has not been significant.
“The revised stressed asset framework is expected to benefit stressed power sector assets that were operational and on the verge of being referred to insolvency proceedings under IBC. The amount involved is estimated at Rs one trillion (as on March 31, 2019)," Crisil
The regulatory changes in recent years have been aimed at bringing asset reconstruction companies (ARCs) into play and diversifying the potential investor base for stressed assets.
With the norms for both, domestic and foreign investments in ARCs and security receipts (SRs) having been eased, and with the business model of ARCs becoming more capital-intensive, the partnership model will be the way forward for ARCs, given the higher capital requirement.
This could happen through various routes, ranging from investment in ARCs and SRs, to direct investments in stressed assets. With a higher cash share becoming a norm, ARCs will need to focus more on resolutions and attracting co-investors.
Going forward, with increase in the proportion of cash deals, the discounts are expected to remain on the higher side. To make way for newer acquisitions and also attract new and repeat investors, it is imperative for ARCs to quickly resolve the assets and redeem the SRs.
Reserve Bank of India (RBI's) resolution framework and the Insolvency and Bankruptcy Code
(IBC) have paved the way for attracting investors into the stressed-assets space and helped speed up resolution. However, ironing out issues regarding legal aspects and resolution timelines will be critical to boost investor confidence, the report suggested.