Photo: Pradeep Gaur/Mint
Photo: Pradeep Gaur/Mint

Edelweiss plans to set up stressed asset fund

Fund corpus to range between $750 million and $1 billion; Edelweiss is looking to raise the full corpus by next year

Edelweiss Financial Services Ltd plans to launch a distressed asset fund with a corpus ranging between $750 million and $1 billion, joining a raft of potential investors in troubled corporate assets that are up for sale.

It will be one of the largest fund-raises attempted by an Indian financial services firm to invest in distressed assets.

“We are looking at launching a distressed asset fund; this is our second international fund and it is expected to be of nearly $750 million-$1 billion. We are expecting to do a first close in October-November time frame," said Venkat Ramaswamy, executive director at Edelweiss Financial Services.

Edelweiss is looking to raise the full corpus by next year, targeting large institutional investors, including pension funds and insurance firms. It plans to deploy the fund over the next four years, starting from its first close.

“We will launch the fund in August and it is expected to raise nearly $350-400 million as part of the first close," said Ramaswamy.

The fund will work closely with Edelweiss’s asset reconstruction company (ARC), led by Sibi Antony.

“We will work very closely with the ARC; a significant part of our resolution and turnaround capability for our stressed asset investment strategy is embedded in Edelweiss ARC. This fund will be advised by a separate team, but significantly guided by Sibi Antony," said Ramaswamy.

The fund expects to stay invested for six to eight years in each company it will put money in, given the significant amount of time it takes to turn around a distressed asset and nurse it back to financial health.

“Over the last four years we would have deployed among the various teams over $500 million for stressed investment," said Ramaswamy.

Edelweiss Asset Reconstruction Co. Ltd has been one of the most active ARCs in recent times.

On 5 July, Mint reported that Edelweiss ARC had acquired loans worth 1,000-1,500 crore of Essar Steel Ltd from ICICI Bank Ltd.

In January, Federal Bank sold 70 crore of exposure to the steel maker. HDFC Bank Ltd sold about 300 crore worth loans given to Essar Steel to Edelweiss ARC last year.

ARCs bought 10,000 crore worth of bad loans out of the 30,000 crore in non-performing assets (NPAs) that banks had put up for sale in the October-December period. A large part of the bad assets were bought by Edelweiss ARC.

According to a PTI report on 16 March, the company has 25,000 crore of assets under management.

Banks laden with bad loans are seeking to transfer sticky assets to ARCs, which buy these at a discount. Bad loans across the 40 listed banks in India increased to 5.8 trillion as of end-March from 4.38 trillion at the end of December.

Other financial firms seeking to tap this opportunity include Ajay Piramal-led Piramal Enterprises Ltd, Kotak Mahindra Group, JM Financial Ltd, SREI Alternative Investment Managers Ltd and Ambit Holdings Pvt. Ltd.

On 15 July, Mint reported that JM Financial Ltd was seeking to raise nearly $300 million to tap the large opportunity from the growing pile of bank bad assets. It will work along with its ARC to deploy the capital.

“All the indicators are good, insolvency law has been passed and it is a matter of time before deals start getting converted. We expect that everyone will get commitments considering the huge debt pile that needs cleaned up and the opportunity available in the market," said Dinkar Venkatasubramanian, partner, transaction advisory services, at EY, the consulting firm previously known as Ernst and Young.

“More and more deals are being crafted by carving out assets from the books of leveraged corporates and we will see more transactions in that space," he added.

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