Cabraal moots Rs. 150 b COVID Equity Fund to revive economy

Thursday, 30 April 2020 00:00 - - {{hitsCtrl.values.hits}}

Warns novel coronavirus pandemic could trigger collapse of collective enterprise if urgent bold measures not taken

Senior Advisor on Economic Affairs to the Prime Minister Ajith Nivard Cabraal is suggesting that the Government and banks collectively lure foreign investors and asset management companies to

PM's Senior Advisor on Economic Affairs Ajith

Nivard Cabraal

establish a ‘COVID Equity Fund’ worth Rs. 150 billion ($750 million), to revive the crisis-hit private sector and the economy.

“I think the Government and the banks together should develop a strategy to woo some new investors who can collectively fund around Rs. 150 billion or $750 million for a COVID Equity Fund,” Cabraal said in an interview.

He proposed that the fund would purchase equity shares in businesses presently challenged, and infuse new hope as well as new policies that can be implemented by these enterprises.

Noting that the fund could be managed by a top private sector Board and CEO, Cabraal suggests that within a period of three to five years, the fund could withdraw from the enterprise, according to a specified exit mechanism.

“As a result of the COVID-19 impact, many businesses are today facing great challenges. There is a greater risk that, if the situation is not addressed as soon as possible, the economic shock may reflect in collective enterprise collapse. This could lead to massive job losses, a serious contraction of the economy, significant social unrest, liquidity risks, as well as losses to the banks and financial institutions and debt default contagion. If we do not address these issues promptly, it could lead to highly unstable macro-fundamentals,” he pointed out.

He said any revival strategy that might be developed to deal with this situation must be able to revive enterprises and save jobs. It should lead to the settlement of the banks’ outstanding dues and improve liquidity, and it should infuse new equity (not debt) into the enterprises and help to reduce uncertainty and stabilise the economy as well.

Within a period of five years, the COVID Equity Fund could exit from these companies by selling the shares in the market, or in a buy-back arrangement, to reposition them as successful enterprises.

“I think if this proposal is implemented, it will bring a whole new stability to enterprises which will become bankable. It would make those stresses go away, the banks will improve liquidity, and the economy will move towards stability once again,” Cabraal suggested.