Banks are beginning to see the light at the end of the lending tunnel, but the challenges facing investors are still daunting. Rebecca Abraham reports

As the clean-up of the balance sheets of lenders continues, and with nearly US$210 billion of stressed assets up for grabs, investors have been circling companies that are on the verge of bankruptcy.

In the latest example of private equity funds tapping into opportunity in the distressed asset space, Blackstone Group recently announced that it would be investing at least US$150 million in Mumbai-based International Asset Reconstruction.


Action has been fast and furious ever since the Insolvency and Bankruptcy Code (IBC) came into force at the end of 2016. The code gives financial and operational creditors the right to file for insolvency following a default of ₹100,000 (US$1,460) or above. As a result the National Company Law Tribunal (NCLT) has admitted about 750 cases, of which about 40 relate to companies referred for insolvency action by lenders after the Reserve Bank of India (RBI) directed them to do so. Most were from the infrastructure and power sectors.

On 18 May, a subsidiary of Tata Steel, Bamnipal Steel, announced that it had successfully completed the acquisition of a controlling stake of 72.65% in Bhushan Steel, which was one of the first 12 defaulters notified by the RBI in June 2017. While Bhushan Steel had defaulted on ₹560 billion, reports suggest that lenders received ₹352 billion to settle their dues and a 12.27% stake in the company.

Tata Steel’s successful acquisition of Bhushan Steel is the first big win for the IBC regime, and much is being made of how it has transformed sentiment. Yet legal challenges abound for investors looking to acquire assets through this route.


“This is a new law and to an extent there is a lack of clarity with respect to certain aspects,” says Sumant Batra, a partner at Kesar Dass B & Associates who is advising on several of the insolvencies that are currently making their way through the system. “Till such time as the jurisprudence on this develops we will continue to face some disruption, and stakeholders will go to court being aggrieved by the decision making process or by the process itself … one can see [this] in all the cases across the spectrum.”


The bankruptcy and eventual successful resolution of Bhushan Steel is a case in point. While considering this case, the NCLT received pleas from: the employees of Bhushan Steel; Larsen & Toubro, which as an operational creditor sought priority over the company’s secured creditors in recovery of its dues; and Bhushan Energy, which sought to continue its power purchase agreement with Bhushan Steel.

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