India to see rise in restructuring opportunities - PE survey

"India's economy is slowing and the rupee has dropped more than 20% in the last year. This has created problems for local companies, including private equity portfolio companies in terms of generating adequate margins from their business," said C.V. Ramachandran, AlixPartners' Asia president.

Investments made in 2007-2008 are in particular trouble as companies face a lot of repayment issues. Performance hasn't been helped by GDP growth contracting from 7% to less than 5% in the last few years.

There are slivers of optimism on the political side, with Narendra Modi, now the country's designate prime minister, leading the Bharatiya Janata Party (BJP) to a decisive victory in the recent general election and ousting the long-dominant Congress Party.

"Given the recent election results, you are likely to see an increase in foreign direct investment (FDI) in India. A single party has gained a clear majority in the lower house, so they should be expected to drive positive change in the economy. Investors are likely to start looking at India very seriously again," said Ramachandran.

While certain reform measures are expected to be put in place to help revive the economy, there is still a lot of concern about aggressive investments made several years ago that have failed to meet expectations.

Seven in 10 survey respondents are expecting the volume of corporate restructuring to increase over the next 12 months in Asia. About 130 out of the total 150 respondents agreed that India will likely see an increase in restructuring, compared to 90 people last year.

AlixPartners' turnaround and restructuring survey was based on in-depth interviews with bankers, lawyers, fund managers, and other restructuring experts from across the region. There were 39 private equity industry respondents.

Japan, South Korea and China will also become a focus of restructuring. Apart from distressed situations, activity will be driven by proactive initiatives. In this way, the restructuring process is not only about stabilizing operations, but also driving companies to expand into new markets, establish supply chains and form alliances with other business partners.

A recent example was KKR acquiring an 80% stake in Panasonic Healthcare, following a decision by parent company Panasonic to seek a partner with medical knowledge and capital to assist the future growth of the business. It is said to be the first time a leading Japanese conglomerate has sold off a profitable business to a PE investor.

South Korea is facing similar economic challenges to Japan. Ramachandran noted that the trend of divestments by Korean conglomerates is likely to continue, given the combination of political and financial pressure to focus on core business areas. Earlier this month, CVC Capital Partners agreed to buy the South Korea KFC business from domestic conglomerate Doosan for KRW100 billion ($97.9 million).

Overcapacity is the main driver for restructuring event in China. However, corporate restructuring is tough for private equity both in China and India. This is due to the dominance of minority growth investments that usually allow founders to retain a strong hold over operations.

The role of the government is also a factor in restructuring activity. Australia, New Zealand, and Southeast Asia stand apart as having the most accommodating government policies, followed by Japan, Greater China, India, and South Korea, according to the survey.

"For the countries like China and South Korea, the local government is starting to play a bigger role [in corporate restructuring], despite slow progress," said Ramachandran.

• Tweet  
• Facebook  
• LinkedIn  
• Google plus  
• Save this article  
• Send to  

• Topics
• South Asia
• North Asia
• Greater China
• Credit/Special Situations
• Asia
• China
• India
• Distress
• South Korea