India Inc is on the cusp of restructuring, say experts

Experts said many firms had unbilled assets on their books

At least a dozen-odd Indian corporate groups were reviewing their structures to monetise assets and weed laggards, said corporate lawyers and mergers and acquisitions' experts.

"We are at the beginning of a series of corporate restructuring exercises," said Girish Vanvari, head of tax for KPMG in India. Prime candidates were diversified business groups, and infrastructure and real estate companies, he added.

Business groups over five years had time to introspect, said Munesh Khanna, partner, PwC India. "This is time to readjust their lens," he added.

Experts pointed out many companies had unbilled assets, and their value was lost in diversified groups. "With a robust capital market, and interest rates set to go down, monetising some of these assets makes sense," said Vanvari. But this would be in step with consolidation across sectors, he added.

FIXING UP THINGS

"We are at the beginning of a series of corporate restructuring exercises," says KPMG

"Prime candidates are diversified business groups, and infrastructure and real estate companies," says KPMG

Another driver for restructuring is unravelling cross-holdings. "Complex holding structures create confusion for present and potential investors," notes InGovern Research Services

"To focus on their strengths, diversified groups need to adequately capitalise these businesses. This may mean monetising some undervalued assets and roping in investors for growth capital," said Khanna.

The Analjit Singh-promoted Max India is spinning off the parent company into three listed entities with separate businesses. "It brings clarity to the group. Investors can tap sectors they are interested in, whether it is life insurance or health," said Rahul Khosla, managing director, Max India.

"As promoters put in place succession plans, there is a growing distinction between management and ownership," said Khanna. "The next generation now has more career options, and may not want to join a family business," he added.

"Complex holding structures create confusion for investors," noted Shriram Subramanian, founder and managing director, InGovern Research Services.

Corporate restructuring had unlocked shareholder value when large businesses were demerged, said Hetal Dalal, chief operating officer of Institutional Investor Advisory Services, a proxy advisory firm. However, some were adverse to the interest of minority shareholders when profitable businesses were sold cheap to promoter-owned entities or when promoters raised holdings without suitable capital infusion.

"We evaluate restructuring on merits and test for valuations and the impact on shareholders' voting rights," said Dalal.

"Minority shareholders should also check the fairness of the consideration being offered. Since most mergers in India involve share-swaps rather than cash, shareholders should ensure the value of the shares they receive is fair," added Subramanian.

Max India, for instance, appointed a class-one merchant banker for a third-party valuation. "We had feedback from analysts and shareholders over 18 months before the demerger. We wanted to meet the expectation of the market," Khosla said.

Any re-organisation must to be measure-driven, said Debashish Mukherjee, partner at AT Kearney. "Under-communication about the purpose behind any restructuring exercise to different stakeholders is a strict no-no. At the same time, there has to be a development plan for each person," he said.  Any restructuring exercise had to be consistent with where one wanted to be as a group, added Khosla.