With the economy slowing down Indian players are looking at setting up distressed funds. Edelweiss Alternate Asset Advisors (EAAA), an arm of Edelweiss Capital is looking at launching a $200-million distressed asset fund. Other players, who already have an ARC licence, are also looking at setting up these funds. Till now, only foreign funds have been active players in this market.
Siby Antony, executive VP and head-distress investments, EAAA told ET: “We propose to put in a vehicle over the next 6-9 months. We should have everything in place by December. We are not looking at retail NPAs, but SMEs and large corporates. We hope to create value in potentially viable units,” he adds. EAAA is initially looking at $200 million fund which could go up to $400 million depending on investor demand. Edelweiss is in the process of applying to the Reserve Bank of India for an asset reconstruction company (ARC) licence.
Mr Antony said initially they would go with a single asset and once ARC is approved, they would go for portfolios. Others, who are in the market to raise funds, include Vision Global which has launched a $200-million fund.
Kotak Mahindra Bank, which had recently received its ARC licence from RBI, is also toying with the idea of setting up a distressed asset fund. However, nothing has been finalised. “The ARC will be formally kicked off in the next three months,” said Deepak Gupta, executive director, Kotak Mahindra Bank. Kotak Mahindra has 49% stake in Phoneix ARC with the remaining 51% is distributed among a dozen high net worth individuals.
A fund could be an option the group could look into in the future, he said. Kotak group has been an active participant in the stressed asset business. Till date, it has been using proprietary capital. It has an outstanding of Rs 700 crore with a principal outstanding of Rs 4,500 crore. Sources said that a number of other players who have set up ARCs are also looking at distressed funds.
Currently, a host of foreign funds has become very active in this space. These include players like Clearwater, ADM, WL Ross, Spinnaker Capital and DE Shaw. Other funds in this space include Eight Capital, an India dedicated distress fund, Avenue Capital. Foreign banks like Bank of America, JP Morgan, Deustche Bank and Standard Chartered have also been active in this space.
There are nine ARCs in India including ARCIL, UTI-led ASREC, IFCI-promoted Assets Care Enterprise (ACE), Dhir & Dhir, International Asset Reconstruction Company and Pegasus Asset Reconstruction Company. Incidentally, one of the big drivers for these funds have been the rising stock markets and increasing real estate valuations. With both these markets down, players will have to be more careful on how they unlock the value of the assets. According to bankers the amount of stressed assets in the country are in the region of $23 billion. This clearly presents an opportunity for funds to invest into, depending on what they want.
Source: Economic Times