MOSL: FINANCIALS-ARCs & stressed assets: Glimpse of a better tomorrow?

​FINANCIALS: ARCs & stressed assets: Glimpse of a better tomorrow?

• The Insolvency and Bankruptcy Code (IBC) is a landmark legislation that aims to offer (i) a time-bound resolution process for stressed businesses, and (ii) liquidation for unviable businesses to provide relief to their lenders. The act is also aimed at bolstering investor confidence by eliminating the existing complex judiciary framework and addressing the ballooning NPA situation in India in a decisive and time-bound manner.
  
• We hosted the ‘ARCs and Stressed Assets Day’ to understand the challenges and progress in stressed asset resolution in India under the new regime. Several industry experts participated, including Mr Sumit Khanna (Partner & Head of Corporate Finance and Restructuring Services, Deloitte India), Mr Dhaivat Anjaria (Registered Insolvency Professional), Mr Eshwar Karra (CEO, Phoenix ARC), Mr Siby Antony (MD & CEO, Edelweiss ARC), Mr Pramod Gupta (CFO, ARCIL) and Mr Abhijeet Das (Principal Associate, Cyril Amarchand Mangaldas). We present our key takeaways.
  
• Promoters and lenders are more proactive in settling their cases: One key impact of Insolvency and Bankruptcy Code (IBC) 2016 and RBI stepping in to mandate banks to refer large accounts to NCLT is that both lenders (to avoid steep provisioning) and promoters (keen on maintaining their ownership) are more proactive in settling their cases before they are referred to the NCLT.
  
• Higher capital requirement for ARCs has led to more all-cash deals: Fuelled by aggressive sales to ARCs by banks, total stressed assets under management by ARCs have increased to ~INR1t. With minimum capital requirement of ARCs buying stressed assets having gone up from 15% of sale value to 50% of sale value with effect from FY18, ARCs are buying more assets at steeper discounts in all-cash deals.
  
• MAT eligibility for carry forward losses to encourage more sales: A new tax law has been passed that allows carry forward losses under previous write-backs to be deductible for MAT. This is expected to encourage more sales to ARCs.