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Debt Ridden Coporates Find Few Buyers for Distressed Asssets
May 23, 2016

The Reserve Bank of India (RBI) has decided to clean up the balance sheets of Indian banks that are collectively saddled with rising bad loans. Banks have been putting pressure on the corporates for repayment of loans. As such, the debt laden corporates struggling with interest payments have announced asset sales. But are there enough buyers? As reported in Business Standard, since April 2015, 33 deals worth Rs 8,200 bn to sell assets have been announced. However, just six have been completed as on date.

Today's chart of the day highlights the increase in the value of assets for sale by the Indian corporates.

Reportedly, two factors have led to poor demand for these assets. One - the companies do not intend to mark down the value of their assets to reflect their true market value. Second, investors are not interested to buy assets in the sectors that are witnessing cyclical downturn. As such, despite all the desperate efforts, the financial stress at these groups has intensified. In fact, most of them have seen further rise in debts.

It may take a long time before highly leveraged companies are able to sell these assets. Until then, these firms and banks are likely to remain vulnerable. And even after the asset sale, their problems might not be over as asset sale will impact cash generation ability of these firms.

Note: *assets on sale during March 2015;
Reliance includes, Reliances infra, Reliance power, RCOM and Reliance Defence;
For JSW, data includes JSW steel and Energy

This Chart Of The Day was published in The 5 Minute WrapUp - Stay Clear of These Misleading Metrics and Managements!

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