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Avenue Cap to pick up majority stake in Arcil for Rs 1,000 crore

Known for its deals in the distressed debt space, Avenue Capital will pump in about Rs 1,000 crore to acquire the stake, said one of the persons cited above.

, ET Bureau|
Jul 23, 2018, 07.38 AM IST
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Avenue Capital will buy the stake from existing investors State Bank of India, IDBI Bank, ICICI Bank and Punjab National Bank.
MUMBAI: Avenue Capital Group LLC, a New York-based investment firm with $9.6 billion in assets under management, is set to acquire a majority stake in Asset Reconstruction Co. (India) Ltd (Arcil), according to two people familiar with the development.

Known for its deals in the distressed debt space, Avenue Capital will pump in about Rs 1,000 crore to acquire the stake, said one of the persons cited above. Arcil is India’s first and leading asset reconstruction company (ARC).

Avenue Capital will buy the stake from existing investors State Bank of India, IDBI Bank, ICICI Bank and Punjab National Bank. Singapore sovereign fund GIC will keep its 10% stake in the ARC.

“The discussions are in final stages and the deal is likely to be signed in a couple of weeks,” said one of the people cited above.

Since its inception in 2002, Arcil has resolved non-performing assets (NPAs) worth more than Rs 78,000 crore acquired from Indian banks and financial institutions, according to the company website. Founded by billionaire Marc Lasry in 1995, Avenue Capital has five offices in Asia and the firm managed assets estimated at about $9.6 billion as of June 30.

Avenue Capital’s Asia strategy has a focus on Australia, Hong Kong, Singapore, South Korea and Japan as well as China, India and Southeast Asia. It invests in Asia from the Avenue Asia Special Situations V fund.

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An Arcil spokesperson declined to comment. Avenue didn’t respond to queries.

As bad loans have piled up in the Indian banking system, several global financial institutions have established a local presence. Plus, with the Insolvency and Bankruptcy Code (IBC) in place, the bad loan resolution process is set to pick up pace, raising the prospect of a surge in business for ARCs.

Gross non-performing assets (NPAs) or bad loans of Indian banks stood at Rs 10.3 lakh crore on March 31. It went up by Rs 1.4 lakh crore from rs 8.86 lakh crore on December 31, 2017. More than two dozen banks reported cumulative gross non-performing assets of more than Rs 7.31 lakh crore at the end of the April quarter, an increase of about 50% from the corresponding period last year.

“As IBC starts settling down with more success stories, interest from global funds, investors will keep increasing,” said KPMG’s head of resolutions and restructuring Manish Aggarwal. To leverage the opportunity best, funds will need to participate through an ARC structure. Hence the interest in either acquiring stakes in existing ARCs or setting up afresh, he said.

ARC RIVALRY
US private equity firm Blackstone Group LP acquired a majority stake in Mumbai-based International Asset Reconstruction Co Pvt Ltd (IARC) in March.

Canada’s largest pension fund manager CDPQ acquired a 20% stake in Edelweiss’ asset reconstruction company in 2016. SSG Capital, a Hong-Kong-based stressed asset investor, acquired a 49% stake in Asset Care & Reconstruction Enterprise (ACRE) in 2014. IFC, the investment arm of the World Bank, owns a stake in Encore Asset Reconstruction Co.

Other global investors that are active in India’s distressed assets space include US fund KKR & Co, which has started its own ARC; Bain Capital, which joined hands with Piramal Enterprises to launch a $1-billion stressed asset fund; and Apollo Global, which joined hands with ICICI Bank for a joint venture, AION Capital Partners, to focus on distressed assets.

ARCs are also a key element of Project Sashakt that entails staterun banks seeking to revive NPAs outside the IBC. The plan also involves asset management companies and alternative investment funds. “Under the Sashakt formulation for addressing the stressed assets as well, one needs to play with AMC-AIF-ARC structure to make the most out of this opportunity,” Aggarwal said.
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