Online Classes :- Current Affairs Part-3

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Highest bidder right choice under IBC

The government has done the right thing by instructing public sector banks to go by the value of the bid while assessing alternate offers for buying out distressed assets offered for sale as part of the resolution of loans gone sour under the Insolvency and Bankruptcy Code (IBC).
The highest price on offer for the resolution asset serves the public interest best in multiple ways. One, it minimises the haircut the banks have to take and, thereby, minimises erosion of lending capacity that has to be made good via recapitalisation of the banks using taxpayer money —from the point of view of public finance, accepting the highest bid is the right choice.
Two, it is the fairest and most transparent criterion by which to determine which among the alternative offers for a particular asset is successful. And, three, it is best for the optimal utilisation of the assets being sold. Any company represents a combination of resources — people, skills, capital, machinery, vision, ambition, brand, goodwill — each of which has value in itself but can produce value in excess of their sum when operated together as a company.
A company’s valuation reflects its ability to produce value, and will be the present value of future income streams. The higher the value, the greater the implied productive potential of a company. A functional market for corporate control will, in theory, ensure that the company keeps producing optimal value: if its performance is suboptimal, someone would find it worthwhile to take it over at a price superior to its current value, and make it run better. The same logic applies when the company is sold at a distressed asset as well.
Whoever pays the highest price for those assets will get them to generate the most income. The highest bidder is the right choice from the point of view of the highest bidder, as well. Who gets to bid for the distressed assets is vital.
Keeping anyone out is suboptimal. The effort should be to widen the market for distressed assets, encouraging public retirement saving trusts to take part along with private equity players.

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