Dearth of opportunities in the mid-market space for lending / refinancing but few takers!

Dearth of opportunities in the mid-market space for lending / refinancing but few takers!

I continue to interact with promoters across a cross section of industries who have the same story for a financial consulting professional.

“I want to revive my company… however there is very little appetite to help me tide over the gap between funding the deficit versus cash flow positive accruals“!

My response to this is that no longer is the palate of the institutional investor going to be satiated with promises of hope / revival based on aggressive cash flow projections … the investor now wants to see a few quarters of net cash flow positive accruals before they join the bandwagon of providing liquidity support.

We are seeing a lot of interest in the larger ticket deals as far as the distress assets are concerned…, however the same interest seems to be lacking in the small & medium sized deals. The reason could be that larger funds as well as strategic investors seem to weighing the “efforts” versus the “returns” that are possible in the case of successful revival of distress units. This comparison and their experiences suggest to them that it is better to go for the big fish in the ocean of distress assets so that their limited partners and stake holders get substantive returns in the medium to long term.

At the same time we are witnessing a slow revival of “patient” capital by way of strategic involvement in the running / operations of the distress units, however as stated earlier in this narrative the interest is more confined to the larger deals in the market. One more significant change we are witnessing is that funds and large investors are investing in putting together teams of specialized professionals who can then constitute the “core team” who is directly involved in the revival work with the promoters of the distress units.

The idea of “making a quick buck” by stripping the unit / business of the saleable assets seem to be a preference only if the other measures of revival like bridge funding / last mile funding or directly equity infusion is not going to work based on some fairly realistic assumptions of the investor community. I think this augurs well for the long term as well as the sustainable revival of the distress units in the country. Also, one should give credit to the regulatory bodies in the country who have taken certain bold steps like broad basing the participation in the Security receipts issued by distress companies by way of being able to subscribe to them.

In sum and substance the direction that the distress market is taking does give one a sense of optimism as far as turning around the sick units, however it remains to be seen that in the medium to long term how many such units come of the red!

-by Prof. Apurva Mehta