Restructuring of stressed assets will provide breathing room to the IBC to clear its backlogs

Shyam Maheshwari was the former Chief Executive Officer, Founder and Partner of SSG Capital Management Limited, and was primarily responsible for SSG’s investment activities in India. Shyam is a gold medallist (All India Rank 1) chartered accountant and also has an MBA from IIM Bangalore where he was the Institute topper.

According to Shyam Maheshwari, timely and proactive restructuring of stressed assets will also provide much-needed breathing room to the IBC to clear its large backlog, before a potential wave from the impact of Covid19. Until the IBC resumes stressed and distressed companies will either continue to limp along, knowing their fate but impotent to change course or they may revert to the pre-IBC status by compromising and doing arrangements under the Companies Act with the bias on lenders to determine debt restructuring. As the financiers are delighted about demonstrating their ‘Art of Restructuring’, Shyam Maheshwari points out some factors to identify a successful restructuring.

Shyam Maheshwari was the former Chief Executive Officer, Founder and Partner of SSG Capital Management Limited

Firstly, Shyam advices to pick the industry or sector carefully before engaging with an existing lender. Make sure the selection plays to your expertise and experience and is ripe for disruption (energy, shipping and aviation). Secondly, he says that one should conduct deep diligence to understand the business. Differentiate between the need to fix the business as opposed to fixing the balance sheet. The latter is always easier. Determining the efficacy of the existing management, changing if necessary and agreeing a path to fill gaps is the third factor.

Shyam Maheshwari says that the fourth factor is negotiating an acquisition price that creates a sustainable capital structure for the underlying business while ensuring alignment of interest between various stakeholders. The fifth factor is to create buffers in the business plan for contingencies while recognising that things will not operate like clockwork. It invariably takes longer for things to fall into place, Mr. Maheshwari says.

“The temporary halt on referrals to the IBC is a timely moment to reflect on its efficacy and ask how the process can be sharpened for a more impactful resumption. Most assessments of the IBC are based on the number of companies that have gone through its doors and emerged with a buyer at a reasonable price”, Shyam Maheshwari SSG explains. In sum, timely and proactive restructuring of stressed assets will also provide much-needed breathing room to the IBC to clear its large backlog — before a potential second wave from the impact of Covid19.