CODE SHARING Cos beef up teams, plan new models for turning around stressed assets
With the government close to bringing in a new bankruptcy code, most leading consultancies are bracing up for a huge increase in business from banks and private equity investors for turning around stressed assets.Professional service firms including the big four -Ernst & Young, PricewaterhouseCoopers, Deloitte and KPMG -have started increasing their team size hoping for the work flow while some specialised turnaround experts such as Alvarez & Marsal (A&M) are looking at replicating their globally successful models in India, industry trackers said.It is expected that the government may roll out something around the bankruptcy framework in the coming months, which would give more powers to banks and other lenders to take over assets of defaulting companies.With approximately $130 billion, or about ` . 8.8 lakh crore, of stressed assets in the banking system in the country and the Reserve Bank of India nudging banks to proactively tackle bad loans, consultancies expect a significant jump in demand for turning around struggling companies.
“We anticipate that there will be significant opportunities for several specialists such as lawyers, claim management firms, special situation funds, information utilities and turnaround specialists,“ said Nikhil Shah, managing director at A&M. “There are approximately $130 billion of stressed assets in the banking system currently . Even if you assume recovery values of about 20%, there is a significant opportunity,“ he said.
According to industry trackers, top consultancies -notably McKinsey -are in the market for turnaround specialists. They said many people in A&M have been approached by McKinsey. While senior executives with A&M claim that no one would leave, industry trackers expect McKinsey to poach some “star performers“ of the turnaround specialist. The big daddy of strategic consulting is also looking to bring McKinsey Recovery & Transformation Services (RTS), a specialised unit that focuses exclusively on turnaround business, to India, they said.
Top law firms such as AZB and Cyril Amarchand Mangaldas, too, are looking to capitalise and offer legal service to lenders and investors in bankruptcy situations as well as to cater to an expected jump in litigations over stressed assets.
Turnaround experts hope that as India brings the bankruptcy code, many banks that are currently unable to take on promoters would be able to have better control.“In India when we talk of bankruptcy it is perceived as something negative. However, there are situations where the company can be turnaround and everyone from the promoter, shareholders and debtors could benefit,“ said Abizer Diwanji, partner and national leader, financial services, EY.
“We expect that banks would be more keen to rope in experts who could not just run the companies where there is a stress loan, but would be able to turn it around as well,“ he said. While many banks have started going after some of the stressed loans under the strategic debt restructuring, that alone may not be enough in some cases, say experts.
Currently, banks are roping consultancies mainly for operational and financial turnaround. Players like SBI, PNB and some other public sector banks have approached turnaround specialists for advice on corporate debt restructuring.
Even some PE firms are roping in turnaround experts for some of their assets. Some such as Blackstone and TPG have also involved operational turnaround specialists in some of their portfolio companies to “optimise returns“, people close to the development said.Two of the biggest players in the turnaround space -A&M and EY -are looking to increase their presence in some of the niche areas.
ET VIEW
India Needs An Army of Insolvency Professionals
Consultancies are spot on.The new bankruptcy code to free projects trapped under debt-crippled managements has proposed a specialised cadre of insolvency professionals to run troubled companies and restore their health. But India has a distance to go in building an army of such professionals. Possibly, not every company will gain by the failed management being pushed out and replaced with professional managers. An amendment to the code, which is pending before Parliament, is worth considering, at least till India builds the pool.
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