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Business News/ Companies / News/  Apollo Global Management looks to start ARC in India

Apollo Global Management looks to start ARC in India

Apollo is one of a number of firms looking at entering the stressed assets business in India as banks try to clean up their balance sheets

The move from Apollo comes at a time when the government has allowed 100% foreign direct investment (FDI) in ARCs, a rule that was notified on 6 May. Premium
The move from Apollo comes at a time when the government has allowed 100% foreign direct investment (FDI) in ARCs, a rule that was notified on 6 May.

Mumbai: Global alternative asset manager Apollo Global Management LLC is seeking a licence to start an asset reconstruction company (ARC) in India, two people directly familiar with the matter said.

Apollo is one of a number of firms looking at entering the stressed assets business in India as banks try to clean up their balance sheets.

Apollo Global confirmed that it is considering the option.

In an email response, a spokesperson for Apollo Global said, “While there continues to be challenges in the establishment and operation of an ARC in India, the recent changes in the guidelines, including those related to foreign shareholding and the benefits afforded by the ARC structure, have some advantages and we are evaluating those and we bring an optimistic viewpoint to eventually participate in this market over the near to medium term."

The move follows the government’s 6 May notification allowing 100% foreign direct investment (FDI) in ARCs.

The government has also proposed changes permitting 100% FDI in security receipts issued by an ARC scheme.

Other global private equity funds such as KKR and Co., Hong Kong-based SSG Capital Management and International Finance Corp. (IFC), the investment arm of the World Bank, have already acquired stakes in existing ARCs to buy bad loans.

SSG Capital is an early entrant in this space. In September 2014, it acquired 49% of Asset Care and Reconstruction Enterprise.

In January 2015, IFC invested in Encore Asset Reconstruction Co. Pvt. Ltd and in March this year, the foreign investment promotion board (FIPB) gave its nod to KKR for picking up a stake in International Asset Reconstruction Co. Pvt. Ltd.

Stressed assets (which include gross bad loans, restructured assets and written-off accounts) for the banking system had risen to 14.5% of total assets as of 31 December 2015, compared with 9.8% in March 2012, according to data from the Reserve Bank of India (RBI).

An ARC usually conducts due diligence on the loans that lenders are looking to sell, and determines the net value of the asset depending on their ability to recover dues.

On 9 May, Mint reported that a host of companies are queueing up for RBI licences to start an ARC. The applicants include global stressed asset specialist JC Flowers and Co., in partnership with Ambit Holdings Pvt. Ltd, domestic financial services firm IIFL Holdings Ltd and former chief financial officer of Sun Pharmaceutical Industries Ltd Sudhir Valia.

Apart from those seeking new licences, Omkara ARC and Meliora ARC got a nod from the regulator in January. Both firms focus on bad loans in the small and medium enterprises (SMEs) segment.

Apollo acquires distressed assets globally and has been seeking to acquire them in India. In an attempt to tap the special situations market in the country, Apollo has a strategic alliance with an ICICI Venture called AION Capital Partners, which has a corpus of $1 billion.

AION invests through the equity, debt and mezzanine route. In March, AION said that along with former GE Capital executives Pramod Bhasin and Anil Chawla, it will acquire the financial service businesses of GE Capital India.

“We are evaluating several types of investments in India; we believe that we have one of the most flexible funds in AION that is operating actively in India. And, through AION, we are certainly also focused on the potential for doing structured investments, control buyouts, equity recapitalizations and, of course, recapitalizing distressed assets in India which are presenting themselves as a very promising opportunity over the near and medium term," the Apollo Global spokesperson said in the email.

Apollo globally operates businesses in private equity, credit, real estate and publicly listed funds managed by it.

“We have committed or invested approximately over $400 million through AION over the last few years in India and we are optimistic we can ramp up the pace over the coming years," the spokesperson added.

Nikhil Shah, managing director at Alvarez and Marsal (India), said, “The ARC structure has been around since 2003-04 from the SARFAESI Act (the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002). Unfortunately, it wasn’t utilized as envisaged. Large global investors looking to invest significant capital through the ARC route is positive for India."

“Till 2015-16, there were only a handful of ARCs who were actively buying stressed loans without investing much incremental capital post acquisition, leading to sub-optimal recoveries. The new breed of investors are investing risk capital to revive and turnaround these assets. We are expecting the market to mature and deepen from here," Shah added.

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Published: 31 May 2016, 11:24 AM IST
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