In 2016, the insolvency and bankruptcy landscape in India was radically overhauled by the introduction of the new Insolvency and Bankruptcy Code (IBC). In addition to consolidating the complex set of existing laws and regulations on insolvency and bankruptcy into a single law, the IBC introduced time bound and creditor driven resolution process for distressed companies overseen by the newly formed National Company Law Tribunal (NCLT).
These changes were supported by amendments to the Banking Regulation Act to enable the Reserve Bank of India (RBI) to force banks to file insolvency applications against defaulting borrowers under the IBC. Since the new law was enacted, more than 500 cases have been admitted by the NCLT with around 1000 applications pending. The restructuring and/or liquidation of these companies under the new system and the accompanying foreign investment reforms has opened up a number of opportunities through different avenues for foreign investors to invest in distressed Indian assets. Continue reading for a summary of the principal avenues for foreign investment in India.
Investments platforms in India for foreign investors
Asset reconstruction company (ARC)
ARCs are specially licensed entities entitled to buy non-performing assets from banks and financial institutions. Foreign investment in ARCs can be achieved by either setting up and owning an ARC; or investing in existing ARCs. As the process for obtaining approvals to set up an ARC can be lengthy, it is more common for investment to occur through existing ARCs. A key way in which ARCs generate funds is by setting up and managing securitisation trusts. To do so, ARCs acquire and transfer non-performing assets into a trust. They then issue security receipts (SRs) to qualified institutional buyers in the trusts. SRs give purchasers the right to receive regular payments throughout the life of the trust and a final payment after all the assets of the trust have been realised. ARCs generate management fees and income by selling and/or enforcing the debt and security which has been transferred into the trust. A key advantage of ARCs is that, subject to certain restrictions, they have enforcement rights in relation to any secured debt they acquire. However, ARCs are extremely limited in terms of the types of assets that they can acquire and are restricted from borrowing outside of India. Non-bank financial companies (NBFC)
NBFC's are companies registered under...