Mega-sale of ailing players is looming: Any financers?

Recognizing that infrastructure is the bone marrow of any economy, the Indian government has budgeted approximately US$90 billion towards the infrastructure sector for the fiscal year 2018-19. This sector, however, has some of the biggest stressed assets. The fate of several infrastructure companies will be decided in the coming weeks.

The Reserve Bank of India (RBI) had issued a circular on 12 February to revamp the restructuring framework for stressed assets. The circular set a 180-day deadline from 1 March for restructuring of stressed assets where the aggregate exposure is ₹20 billion (US$285 million) or more, failing which banks must initiate the corporate insolvency resolution process (CIRP) under the Insolvency and Bankruptcy Code, 2016 (IBC). Unless this deadline is postponed, several infrastructure companies will enter the CIRP soon. This is in addition to the telecom, road project and engineering, procurement and construction companies which are already in or on their way into the CIRP.

While introduction of the IBC has improved investor sentiment and led to speedier recoveries, for any effective rescue operation potential bidders must have adequate sources of funding available to take over and restructure these infrastructure assets. Given that debt is often the preferred mode for financing infrastructure projects due to their long gestation periods, the current legal and regulatory framework needs to be revisited to ensure that bidders have sufficient and viable methods of raising debt financing.

Aashit Shah and Utsav Johri are partners in the Mumbai office of J. Sagar Associates. Views are personal.