Rajurkar of Knights Restructuring sees huge opportunities for turnarounds and for proper disposal of NPA assets|
The Securitisation Act 2002 has induced a fear in bank loan defaulters. Though the Act permits bankers to confiscate the pledged assets, they do have a problem here- the problem of disposing the security.
That the bankers do not have the skill set to run another business is well known. The same applies in the case of disposing an asset, which invariably is a distress sale. It is here that companies like Knights Restructuring Services Southern India sense a business opportunity.
Says managing director, Shashank Rajurkar: "There is a huge opportunity in India for turning around companies or for proper disposal of assets."
Rajurkar refers to the Rs.90,000 crore opportunity - the total non performing assets (NPA) run up by the domestic banking industry.
An engineering and management graduate, 38 year old Rajurkar spent eight years with IFCI Venture Capital Funds before starting his own venture capital firm Vencompass Consulting Partners.
Joining hands with the Australian company Knights Restructuring Services, he has ventured into the restructuring of business activity. "In India a huge capital is locked up in sick companies and it could be unlocked," he remarks.
Rajurkar talks about how Knights Restructuring would go about restructuring companies or unlock the locked up capital in sick enterprises. "In a couple of months we will expand our operations to Hyderabad and Bangalore." The company is in talks with couple of companies for restructuring assignments. Excerpts.
What is Knights Restructuring Services?
The Indian company is a joint venture with Knights Restructuring Services, a listed company in Australia and myself. I hold minor stake in the company. Our business is to help the borrowers and the lenders to recover as much as possible out of a sticky situation. As mentioned earlier, lenders do not have the skill set to run the business of a defaulting borrower. Further they will not be able to realise the market value of the assets. We help the defaulting borrower with an honourable exit.
And how do you do that?
The Australian partner is in the business of restructuring organisations for several decades. The company has several industry experts who can run a business. A tripartite agreement will be signed between the lender, borrower and ourselves. As per the agreement, the existing promoters of a defaulting company will relinquish the management control in our favour. There will a cooling period - normally one year- during which time the lenders will not enforce their legal rights. We will run the company, stabilise its operations and finally exit bringing in a new investor or even handing the company back to the original promoter.
Why do you have to actually run the company?
We will run the company to plug the leakages and control cash flows-in and out. Controlling funds is important while turning around a company. The existing top management will be retained and if necessary we will hire experts to manage the company. Normally our contract will be for one year.
Turning around a sick company involves selling of assets real estate, plant and machinery. If the company is not running, the assets will not fetch its market price but only the distress sale price. On the other hand a running business can sell its non- core assets at a good price.
While managing the company if you run up additional liabilities, who will be responsible for that - you or the original promoter?
Those things would be dealt on a case to case basis. The liability of each party will be negotiated upfront and incorporated in the tripartite agreement. Before getting into the driving seat, we will understand the needs of each stakeholder.
What is your revenue stream?
Our revenue model depends on the kind of contract we enter. It could be a percentage of the money recovered or a fixed charge. We may even charge on hourly bases. In Australia we do charge on hourly basis.
There is no competition for us now in India as the model is new. We will market our services to promoters, lenders and others. Apart from actual running of companies we also vet business plans and offer advisory services. Worldwide we are logging 20 per cent annual growth.
Does Knights Restructuring have any preferred sectors?
We don't have any preferred sectors. At any point of time, the Australian parent company has around 700 assignments. For last 30 years we have been doing this and have developed a huge knowledge base in turning around companies. Worldwide Knights Restructuring has 112 employees and each managing 7/8 cases. In India we will look at companies having a loan portfolio of Rs.3 crore and we are not looking at individual insolvencies.