Chimborazo Ventures LLP

In their own words

In India prior to 2016, there was no single resolution mechanism to recover loans from stressed assets. In 2016 the Government of India passed the Insolvency and Bankruptcy Code (IBC) which comes under the National Company Law Tribunal (NCLT). The idea behind the code was to make resolution and recovery of stressed assets faster. Most of such cases in the IBC are moved by financial creditors like Banks, Non-Banking Finance Companies etc. Even though it has been six years since the IBC came into effect, only about 33% of the total liabilities have been recovered from defaulting companies. The above figure does not paint the complete picture, since most stressed assets that have been successfully resolved are larger listed companies which are attractive for competitors and large funds. When a Small and Medium Enterprise (MSME) with turnovers of INR (Indian Rupee, 1 Rupee = 78 USD) 250 crore and below (1 crore = 10 million) is referred to the NCLT under IBC, there are very few takers for the assets of the company since most of them require specialized knowledge which only promoters have. This makes recoveries of MSME debts under IBC extremely tough, and often Financial Creditors take a significant loss on their loan amounts (Called haircuts) to prevent bad debts from piling up on their balance sheets. Since the IBC is a fairly new concept, there are very few companies which are focussing on stressed MSME assets and most of them are run by professional money managers. Most of the focus is on resolution of larger stressed assets which can be immediately absorbed by existing competitors and funds. However, since the competitor of the MSME is most likely to be an MSME itself, it is highly unlikely that the promoters would have the necessary financial backing to absorb another competitor. There are Asset Reconstruction Companies (ARC) that focus on such assets, but usually these stressed assets are bought out from the bank. The focus of Chimborazo is on this overlooked and extremely lucrative opportunity of buying out these stressed MSME assets and getting MSME promoters of the same assets on board to maximize value.

Written by the company on its public Startup India profile. Not verified by us.

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