Shyam Maheshwari on stressed asset management and the Indian economy

 

Shyam Maheshwari serves as Chief Executive Officer, Founder and Partner of SSG Capital Management (Singapore) Pte. Limited, and is primarily responsible for SSG’s investment activities in India. He has 17 years of experience in the deal sourcing, analysis and investing industry. Previously, Mr Maheshwari served as a Senior Member of the Lehman Brothers Asia Special Situations Group primarily responsible for making principal investments in India, where he oversaw the efforts to build the India business and initiated pan-Asian ventures in mining and power assets with a focus on Indonesia. He initially joined Lehman Brothers in 1999 as a Credit Analyst in the Asia Credit Research team and later moved to Credit Trading in early 2005. He served as Fixed Income Analyst of Barclays Capital, Research Division. He worked at Barclays PLC, Research Division. He was a Credit Analyst of Lehman Brothers Holdings, Inc. from 1999 until 2005. He has been a Non-Executive Director of Future Supply Chain Solutions Ltd. Since June 30, 2016.

Shyam is a gold medalist (All India Rank 1) chartered accountant and also has an MBA from IIM Bangalore where he was the Institute topper. After over 12 years as a founder of SSG, Shyam Maheshwari in July 2021 leaves Ares SSG to dedicate more time to his family, especially his children, and pursue his interests in philanthropy and other personal interests. Over the years, Maheshwari has made significant contributions to SSG, particularly in the Indian market, where he has helped to build a strong business, and importantly a deep team of senior investment professionals who are well-positioned to carry on successful Indian business.

Ways to counter stressed asset development

Mr. Shyam Maheshwari serves as Chief Executive Officer,
Founder and Partner of SSG Capital Management
(Singapore) Pte. Limited

Shyam Maheshwari tells about the recent developments around stressed assets resolution. They are a $4.5 billion platform today. India has happened to be a large part of our investments since 2009. The economy has a tailwind of growth, said Shyam Maheshwari. They have put in resources, talent pool and capital as well as processes. It’s a market you have to work hard for, he said. They have done 14 steel site visits in the last two years but they haven’t concluded a deal in India yet. It takes time but there’s nothing called wasted learning, he said. According to Shyam Maheshwari, foreign investors have to continuously work on the process of executing things and are ready to invest their capital in India.

Mr Shyam Maheshwari also said about the challenges they face in the country. Assets have to be fundamentally sound. Operating assets could have been mismanaged. Operating a completed asset is the first criterion. They thought about the steel cycle and realized that the government came up with the process which created a flow to steel prices in India. The same thing is happening in China too, said Shyam. Non-operating assets are shutting down. In that context, they had started looking at those assets and at that time the law (Insolvency and Bankruptcy Code) had not been enacted and there was no process of restructuring.

According to Maheshwari, diligence is a learning process. As he said one has to be in the game to learn the game. They put the resources and people on the ground. They are paying to learn the game. The process is fine. It’s all about being there and contributing positively.

“Expectations of our investors are similar to us. On the equity side, you just can’t make a quick buck and then leave. We have a long duration fund of eight-10 years. We need that kind of time to figure out our way. You have to create that process, discipline and risk-reward as an investor and it is not different from what a strategic investor would do”, said Shyam Maheshwari.

According to Mr ShyamMaheshwari, Challenges are opportunities. Firstly, one has to be in the game. Their fund is a long duration fund with no leverage. The second aspect is that doing business is not easy. Things that he would like to change in IBC would be the bias for strategic investors over financial investors. It’s very clear how the committee of creditors think today. Asking Rs500 crore for an initial deposit is not possible. One has to think that time is valuable and money is valuable. And I think this would happen over some time.

“We are cognizant that every asset is not for us. It’s difficult to assess the liabilities”, said Shyam Maheshwari.

He is optimistic because the process in front of his eyes has changed positively. The whole part of foreign portfolio investments (FPI) to invest in debt instruments is good. This has created a level playing field for foreign and domestic funds and much more is required to solve the problem of the mammoth size that face. Many things have ramifications when the company goes into debt. Salaries are not paid; the income tax department is after your life and this cannot be underestimated. The process is improving, creditor rights are recognized. The attitude is changing and this NCLT process is a level playing field in itself, concluded Shyam Maheshwari.

 

Russia-Ukraine war effects on the Indian market

Shyam Maheshwari also talks about the impact caused by the Russia-Ukraine conflict have on India. Even before the conflict began in Ukraine, the expected rise in US interest rates was creating pressure on emerging markets including India. The hardening of interest rates could cause some stress in the retail credit.  The conflict has aggravated the short-term market situation. Russia was investment grade and had a significant presence in most of the bond indices. They are in unchartered waters here whether the sovereign would be able to honor their commitments despite having reserves to do so.  Shyam Maheshwari feels this is creating forced liquidation of portfolios, margin calls and low liquidity in secondary markets.  However, given the fundamentals of India remain strong, the impact of high oil prices may slow the growth rate but should still keep them at attractive levels. The off-shore credit markets are very attractive at present to acquire India related risk on higher-quality names.  As this normalizes, the opportunities in local markets would again become more attractive.

 

Private lenders on the Indian credit market

Shyam Maheshwari describes the Indian credit market and how it is dominated by private lenders. The Indian credit market has been dominated by banks and non-bank financial companies for a long period. It started with the primary dominance of PSU banks then the private sector banks came along.  Still, the credit to GDP ratio is relatively modest and low for the stage of growth of the country.  As the economy develops credit intensity would probably increase initially and the need for credit is very much out there. The challenges the banks and non-banks as you have rightly pointed out may not be able to fulfil that requirement and that’s where the private credit demand is extremely apparent and necessary for the growth, says Shyam Maheshwari.

Shyam Maheshwari thinks that taking what he said on the flexibility, also emanates from the regulated players which have been dominating the market for a long time whether it is a bank or a non-bank. One is regulated second is leveraged. The leverage platforms have certain constraints which were shown when IFS has happened in terms of whether it is LLM or it is provisioning norms. Flexibility is available in terms of speed. Flexibility is also available in terms of crafting a solution which is meeting the need of the borrower then. It could be for capital formation, which is quite a constraint in terms of financing from the traditional sector in India.  The third is real estate, fourth is intangibles, according to Shyam Maheshwari.  Lots of these are also sectors that are kind of at the building block of the country especially real estate which does not get adequate attention from the banking sector.  So, coming to the ground exactly what you would expect certain sectors have more need but it seems like the need has grown rapidly at least in terms of number enquiries.

Primarily because of constraints especially at this point where the banking sector is running double-digit MPL ratios.   There had been certain comfort for the investors from the global perspective which is there is an IBC process in place. There is creditor protection which is increasing and improving over time. Of course, the access to the market remains open, improving but still, a lot could be done as also he pointed out in form of access which is only available to the foreign participant in form of either an ECB in dollar terms or in rupee bond market which has certain nuances and constraints at this point.  However, still, it is pretty encouraging to see the signs that it has been opening up in the last decade or so.