Savvy PE funds too find investments stuck in CDR cell

Nov 05 2013, 09:55 IST
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There are at least eight PE-backed firms whose loan recasts are being considered by the CDR cell. There are at least eight PE-backed firms whose loan recasts are being considered by the CDR cell.
SummaryMarquee names like Fidelity, Barings Asia have investments in firms whose debt is being restructured.

restructured debt, whichever is higher.

In some cases, PE firms have tried to exit the company before it enters the CDR. ICICI Venture exited most of its investment in Arch Pharma profitably before it entered into CDR in April by selling the stake to Mitsui & Co.

However, another ICICI Venture-backed firm, Tebma Shipyards, loan of R700 croreis waiting to be recast. The PE firm invested in the company in 2007 and became a promoter of Tebma with subsequent investments. In 2010, it brought in Bharati Shipyard for professional hand-holding but Tebma entered the CDR in October in the same year. “The investor is evaluating exit options but has possibly written it off quite early,” says a person with knowledge of the investment.

While writing down the investment is an option available to the PE investor, most use that only as a last resort.

“Any PE firm, before writing off its investment, will first consult the promoter, management and auditors. After evaluating all other options, only if writing off is the last option, will the investor resort to it,” says a senior PE fund manager.

Others feel it is best to wait it out as a successful debt restructuring can help improve valuations.

“If a company is over-leveraged, PE funds play an active role in the negotiations with the lenders and help the company strengthen its balance sheet with a focus on exiting non-core assets and rebuilding the business plan. CDR will ultimately sweeten the ability to exit but in the interim, exit options are limited,” says Vikram Hosangady, head of private equity at consulting firm KPMG India.

“PE firms would increase their investment in the company only if they believe that the business is likely to see a significant turnaround,” he added. “

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