Sebi’s new norms on stressed assets is in line with RBI’s NPA resolution plans
The Securities and Exchange Board of India (Sebi) decision to allow private investors takeover of stressed assets of companies without making a mandatory open offer, will boost RBI’s efforts to resolve the non-performing loans (NPAs) and assets issue.
The markets watchdog’s decision on Wednesday is in tandem with the RBI’s plans to quickly resolve or sell sticky NPAs that have crossed a colossal $150 billion, held together by state-run, private and foreign banks. The takeover of equity up to 25 per cent and beyond in a company would trigger the mandatory open offer norm in any corporate merger or acquisition deal.
Till now, only banks were exempt from making a public offer while taking ownership of stressed assets. Sebi under the new chairman Ajay Tyagi has extended this facility to private investors buying stressed assets or equity in companies whose debt is being dealt with under the new Insolvency and Bankruptcy Insolvency Code.
The three-year lock-in stipulated by Sebi for assets acquired by investors without an open offer, will give time to smoothen out such businesses and stabalise restructured companies.
This will also restrain private investors from dumping stressed assets of companies immediately on acquisition, with a view to profiteer and move on.
To begin with, the new norms announced will give enough headroom for the RBI and bank managements to resolve NPAs with 25 top defaulters.
Sebi is right when it insists that the equity sale in stressed companies without mandatory open offer obligations, must have the approval of shareholders at an annual or emergency general meeting. Banks and owners of stressed companies have also been prevented from taking recourse to ‘sweet heart deals’ with concerned lenders, as the pricing in sale of equity or assets will need explicit approval from the central bank.
A five-member expert panel headed by former vigilance chief commissioner Pradeep Kumar, which also includes three senior bankers and an ex-CFO of a major conglomerate, will guide the RBI.
The National Company Law Tribunal (NCLT) concurrence for such deals would also come once the RBI approvals are in place.
While the finance ministry provides necessary wherewithal and policy support, the central government has consciously kept itself out of the restructuring, sale of equity or assets in companies that owe banks billions of dollars.
The first five out of eleven cases identified by the RBI panel for restructuring or liquidation under the new code are from the steel sector. The panel should exhaust all options before its recommends complete liquidation of steel assets that have been created with a lot of difficulty over the last few decades.
The first option should be to rope in domestic private or foreign steel companies to buy these assets outright.
Alternatively, private steel companies may be asked to hive off and run the viable huge steel capacities created by companies like Bhushan Steel, Nippon Steel, Essar Steel, Electrosteel Steel and others.
The third option could be to handover operations of these steel assets to state-run SAIL or its subsidiaries while ownership continues to be with banks. Keeping the restructuring, valuation and sale of stressed assets held by banks will also set a precedent for the future.
The resolution of first 25 top defaulters will lay down the foundation for dealing with smaller companies, whose businesses have run into losses.
RBI has a big task at hand while deciding the extent of haircut banks would take in the process. Resolution and restructuring of NPAs must be a one-time act. Otherwise, corporate defaults — both willful and genuine — would rise exponentially making the banking system vulnerable.