International investors have cast doubt over the India's overhauled bankruptcy code. The controversy stems from the auction of shadow lender Dewan Housing Finance Limited (DHFL), a company with about $14bn of debt that was taken over last year by India’s central bank. Global investors Oaktree Capital Group and SC Lowy have been competing against Indian conglomerates Piramal Group and Adani Group to buy DHFL’s assets.
All submitted bids ahead of a mid-November deadline. Investors said Adani Group, one of India’s most powerful conglomerates, put in a bid for parts of the business at the same time as everyone else on November 9. However, they said Adani then filed a second “unsolicited bid” for all the assets after that deadline. Adani Group’s bid of $4.2bn was only slightly higher, by Rs 2.5bn, than Oaktree’s, said people with direct knowledge of the matter. A person close to the Adani Group said all rules and regulations were being followed.
The Adani Group’s offer prompted the creditor committee to hold a vote on whether to have another round of bidding in the interest of fairness. The results of the vote are expected early this week. The episode has thrown a new spotlight on respect for due process in India and the speed of its bankruptcy resolution procedures at a time when the country’s economic troubles have led to a rise in distressed assets.
“There is too much nonsense going on,” said a person close to one of the international investors. Recommended Markets InsightBenjamin Parkin India is coming around to the idea of foreigners owning its debt Introduced to much fanfare in 2016, India’s overhauled bankruptcy code is designed to speed up resolutions, boost recovery rates and generally make it easier to do business in the country. At the time it was introduced, bankruptcy resolutions in India were notoriously slow with an average recovery rate of just 25.7 cents to the dollar. Recovery rates have significantly improved but cases can still drag on for years, well beyond the stipulated resolution timeline. “What puts global investors off is . . . the uncertainty in the resolution process,” said Pradip Shah, head of IndAsia, a corporate finance business, adding that the implementation of the bankruptcy code was “still a work in process”. Piramal Group has written to the creditors warning it may pull out of the process entirely. Oaktree, Adani Group, Piramal Group and Hong Kong-based SC Lowy declined to comment.
