Aditya Birla Capital may raise a distressed assets fund
Aditya Birla Capital Ltd (ABCL), which made its debut on the stock exchanges on Friday, will be looking at raising a distressed assets fund as part of its asset reconstruction company (ARC), Kumar Mangalam Birla, chairman of the Aditya Birla Group, said in an interview.
The financial services arm of the $50 billion conglomerate is awaiting a licence from the Reserve Bank of India (RBI) to start its ARC business.
ABCL, which applied for the ARC licence in April, will be leveraging the expertise of Aditya Birla Group in turning around businesses. “We have a lot of strength in turning around businesses. It is an opportune time for us as well as the sector (to enter this business) with stress on resolution of non-performing assets by RBI. Given the macroeconomic context, a lot of businesses will require turning around,” said Birla.
India’s banking system is sitting on a pile of bad loans that are expected to cross Rs9 trillion by the end of fiscal year 2018, according to a report released by credit rating firm ICRA Ltd on Thursday. With Parliament passing the Insolvency and Bankruptcy Code, there is increased focus on resolution of stressed assets.
Ajay Srinivasan, chief executive of ABCL, said the firm will be looking at raising the distressed assets fund in “conjunction” with the asset reconstruction business.
“Yes, along with the ARC, a distressed assets fund is something we will be looking at. We will be open to undertake asset restructuring through partnerships and also from our own balance sheet,” he said.
The asset reconstruction business is attracting interest. The government has supported the business through legislative and regulatory changes, including allowing 100% foreign direct investment in ARCs and raising the sponsor’s holding limit from 49% to 100%.
A 29 July PTI report quoted finance minister Arun Jaitley as saying that IBC and the government’s emphasis on resolution provides an opportunity for ARCs, as stressed assets still have inherent value. RBI and the government are more keen on resolution of stressed assets than liquidation and closure of firms.
On 24 July, Mint reported that global private equity firm Blackstone Group is exploring opportunities in the Indian asset reconstruction business.
Some others considering setting up an asset reconstruction business in India include J.C. Flowers and Co., in partnership with Ambit Holdings Pvt. Ltd; and IIFL Holdings Ltd and Sudhir Valia, the former CFO of Sun Pharmaceuticals Industries Ltd. US-based stressed asset firm Lone Star Funds has also applied for an ARC licence from RBI. Large banks such as State Bank of India and ICICI Bank Ltd have also set up platforms to invest in stressed assets.
Raising a stressed assets fund will provide more bandwidth to the ARC for a successful turnaround of stressed assets.
“ARC allows for buying of the stressed assets. Once the assets have been bought, they need to be capitalized. This is where the stressed asset fund comes in. It allows the ARC to service the entire spectrum of asset reconstruction,” said Ajay Garg, founder and managing director of Equirus Capital Pvt. Ltd, a Mumbai-based investment bank.
Asset reconstruction is a capital-intensive business. RBI regulations now require ARCs to pay 15% of an asset’s value upfront to the banks. Listing of ABCL on the bourses will also allow the firm to access funds from the market.
Birla also said the focus of ARCs has changed from financial re-engineering to actual resolution of stressed assets and operational turnaround.
“Traditionally, it (ARC business) was limited to refinancing and structured debt. This has changed now. Thus, to succeed in the business, a lot of depth and expertise is needed, which the group has,” he said.
On their first day of listing, ABCL’s shares lost 5% to close at Rs237.50 on the NSE while benchmark index Nifty gained 0.57% to close at 9,974.40 points.