Mumbai: IndiaNivesh-First Bridge Capital Manager, a fund management company, plans to raise as much as Rs 900 crore in its second fund to invest in companies that are struggling for working capital and staring at bankruptcy but have the potential to turn around with financial restructuring.
The fund would be aimed at buying stakes in mid-sized and small companies that banks are not looking at positively but have businesses that can be ramped up with some equity investment, said KK Rathi, managing director of IndiaNivesh First Bridge Fund Manager.
“We are looking to deploy funds in… mid-sized listed and unlisted companies with focus on manufacturing and consumer sectors” that can be turned around, said Rathi. “Unutilised capacity and inadequate working capital resources, good market potential and committed promoters will be key factors to identify such companies.”
Investors have become more comfortable in companies that are stressed after the government introduced the Insolvency and Bankruptcy Code. The stern message from the government in not letting promoters take creditors for a ride makes investors believe that investments can be recovered quickly following a legal process.
The proposed capital raising is christened as IndiaNivesh Renaissance Fund, which is chaired by former Securities & Exchange Board of India chairman GN Bajpai. It will have two components – about Rs 300 crore from domestic investors and Rs 600 crore from international investors.
“Turnaround plans will be predicated on cost rationalisation, debottlenecking and efficient working capital management,” said Rathi, a former executive at Future Group. “We look to capitalise on their future profits once they are brought back to shape.”
The fund will have a tenure of about six years, extendable by another year, and invest an average of about Rs 60 crore in a company.
“Many entrepreneurs are good in assessing the capex, but don’t do such a good job when it comes to working capital,” said Rathi. “There is always a gap between when your payments are due and when you get paid. That’s where most of the stress comes.”
Stress in Indian companies is growing, with many of them unable to manage their cash flows after incurring huge capital expenses. Distressed loans with Indian banks are estimated at almost 12% of total banking sector loans.
According to industry estimates, over 2,400 listed entities have negative net current assets and more than 200 firms have receivables exceeding 180 days. Of the 1,000 companies that restructured debt in the past decade, almost half require equity investments to prevent them from going to bankruptcy courts.
“This is an opportunity for a fund like ours, given that there is a lot of realisation among promoters that there is value in giving equity to investors like us since banks are hesitant in many cases,” said Rathi.
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