Enterprise Value Row
Bankers and prospective bidders of distressed assets are slugging it out over the valuation of businesses under the bankruptcy code.
- Dec 23, 2017,
- Updated Dec 28, 2017 6:51 PM IST
Bankers and prospective bidders of distressed assets are slugging it out over the valuation of businesses under the bankruptcy code. There is a provision for providing only 'liquidation value' under the code, which is a worst-case scenario, if there is no resolution. But 'liquidation value' has actually ended up becoming a starting point for buyers to bid. This is creating lot of anxiety in the banking community as a lower bid price means higher haircuts on loans.
While there is no provision for 'enterprise value' under the code, bankers are lobbying for a clause insertion. This would cover assets, especially in sectors such as steel and real estate, that have better value than, say, assets of an EPC business or an infrastructure player. Bankers assert that the enterprise value correctly reflects the value of the business as it takes into account debt, market capitalisation and cash on the books.
Bankers and prospective bidders of distressed assets are slugging it out over the valuation of businesses under the bankruptcy code. There is a provision for providing only 'liquidation value' under the code, which is a worst-case scenario, if there is no resolution. But 'liquidation value' has actually ended up becoming a starting point for buyers to bid. This is creating lot of anxiety in the banking community as a lower bid price means higher haircuts on loans.
While there is no provision for 'enterprise value' under the code, bankers are lobbying for a clause insertion. This would cover assets, especially in sectors such as steel and real estate, that have better value than, say, assets of an EPC business or an infrastructure player. Bankers assert that the enterprise value correctly reflects the value of the business as it takes into account debt, market capitalisation and cash on the books.