Mumbai: Aditya Birla Capital Ltd (ABCL), the financial services arm of Aditya Birla Group, has announced a joint venture with US-based alternative assets manager Varde Partners to invest in distressed assets in India. In an interview to Mint, Ajay Srinivasan chief executive officer of Aditya Birla Capital, said that Varde Partners will come on board as a 50:50 joint venture partner in ABCL’s newly incorporated asset reconstruction company(ARC) for which it received Reserve Bank of India ( RBI) approval in September last year. Mint was the first to report on the ongoing discussions between two sides on 3 May this year.
“There are two components to the JV which we announced," Srinivasan said adding, “ABCL and Varde will jointly invest in the ARC and both partners will invest in a domestic alternative investment fund (AIF)."
“We will initially capitalize the ARC with the stipulated ₹ 100 crore and then we will continue to deploy capital," Srinivasan said. “There is no minimum commitment per se as far as the total investment in India is concerned and we will keep evaluating opportunities as they come."
“With the first set of 12 cases already in the National Company Law Tribunal ( NCLT) our focus will be on smaller assets where Aditya Birla group with the vast operational expertise on several sectors can come and engineer the turnaround," he said.
“On the special situations front, the strategy will be to do both debt and equity such as in mezzanine funding," he added.
Founded in 1993,Värde currently manages about $14 billion globally, and has invested nearly $500 million in India in the past five years across corporate stressed, distressed, special situations and lending assets.
With regional headquarters established in Singapore in 2008, Värde expects to open its fifth Asia office in Mumbai later this year, subject to regulatory approvals and it is also a shareholder in Altico Capital, a domestic real estate-focused non-banking financial company based in Mumbai.
In August this year, ABCL hired former president and chief operating officer of Asset Reconstruction Company (India) Limited to head its ARC business. In September last year, Aditya Birla group Chairman Kumar Mangalam Birla had said that the group was looking to leverage its operation expertise 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," Birla had told Mint in an interview.
With the joint venture in place, ABCL will join the ranks of industry peers who have set up similar structures with global funds to tap opportunities in the distressed assets space.
In December, IL&FS group and US-based private equity fund Lone Star announced a partnership to jointly invest in distressed infrastructure projects in thermal power and the road sectors with a capital pool of $550 million.
Expanding its India footprint, Lone Star also announced a tie-up with RattanIndia Group to jointly invest ₹ 2,600 crore in a non-banking financial company, RattanIndia Finance, in which both sides own a stake of 50% each. Others global funds that have adopted similar strategy include KKR, Blackstone and Aion Capital who have set up ARCs to warehouse bad loans as they continue to invest in special situations opportunities.