As per the reports, experts said that investors who have bid for assets under the IBC are expected to reassess their offers as cash flow projections have gone awry mid the covid-19 pandemic and the ensuing nationwide lockdown. The IBBI has already said that the period of lockdown imposed by the government will not be reckoned in the resolution timeline. The lockdown has been in force since 25th March and ends on 18th May, if not extended further. The entire thought process of investors has changed due to covid-19 and investors are trying to assess its potential impact on businesses.
“There is a likelihood of resolution applicants, who have already submitted bids, negotiating the pricing again, since the financial assumptions on which they had bid may have changed on account of covid- 19,” adding that bidders may also use clauses like Material Adverse Effect or similar clauses, if the same have been provided in the resolution plans for such negotiations.
Since its inception, the IBC process has been mired in last-minute litigations with promoters trying hard to retain control of their companies, for instance- the case of Essar Steel. While IBC prescribes any asset resolution within 330 days, Essar Steel’s resolution and sale to ArcelorMittal took 866 days. It is thought that bidders will soon approach the committee of creditors (CoC) to revalue their bids, citing covid-19.
If these are within reasonable limits, the CoC could approve them. However, if these revised deals are substantially lower than the original offer, lenders will challenge them, and one can expect further delays. Most re-negotiations are expected in manufacturing companies where factories have been shut and in construction companies projected cashflows have taken a beating.
Although IBBI has exempted the lockdown period from calculating timelines, practically running the companies under this situation is more difficult. If it continues further after the third extension of lockdown, sustainability threat would be inevitable for many firms as value erosion is happening rapidly, adding that the number of pending IBC cases piled up is now another challenge and that has direct impact on value of such assets or enterprises.
When things will open after the lockdown, buyers will want to re-think their offers especially if the business has lost its value through the lockdown. It is expected that this is to happen in stressed assets in construction and real estate sector, auto components and hotel industries. Wherever settlements are being done or restricting or recovery has been done under IBC or Sarfaesi, everyone is asking for a moratorium. There is no option but to give it. It is not expected that any large revenues will come in this year.
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