Standard Chartered’s stressed assets sale finds few takers
PremiumSSG Capital only investor in talks to acquire $1 billion worth of loans from Standard Chartered's offshore book, but at 30% discount
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Mumbai: Standard Chartered Plc, which is in talks to sell $1.5 billion of stressed loans including those made to Essar Group and Cairn Energy Ltd, has drawn lukewarm interest from distressed-asset buyers for the offshore loans that form a big chunk of what the lender plans to sell.
SSG Capital Management Ltd, a Hong Kong-based distressed-asset investor, is the only firm that is still in talks with Standard Chartered to acquire nearly $1 billion worth of loans from its offshore book, said three people familiar with the discussions, requesting anonymity.
“The bank is looking to sell $300 million worth of loans of Cairn Energy, and the rest is of Essar Group towards which it has a huge exposure. Depending on the discount SSG is seeking, a deal will be carved out," said one of the three people cited above.
The second person added SSG Capital is seeking a 30% discount to the value of the assets.
About $5 billion in advances that Standard Chartered made to Indian borrowers had been internally classified by the bank as being at risk of default, Bloomberg reported in November. This includes the $2.5 billion the bank loaned to Essar Group.
Bill Winters, who took over as Standard Chartered’s chief executive last year, is trying to restore profitability at the lender after predecessor Peter Sands’s strategy of aggressively seeking growth in emerging markets in Asia left the bank with billions of dollars worth of stressed assets and its first annual loss in more than two decades.
“It is important to assess the right price for such assets and make the sale as soon as possible, instead of sitting on them and waiting for a deal," said Nirmal Gangwal, founder and managing director of Brescon Corporate Advisors (P) Ltd—a debt restructuring and turnaround advisory firm. “Most large foreign banks make necessary provisions and exit stressed loans soon, which is the right way to deal with such cases."
Mint reported on 12 April that the London-based bank had initiated talks with firms such as Canada Pension Plan Investment Board, KKR India and SSG Capital to sell loans worth more than $1 billion.
“The India book that is on sale is valued at about $1.5 billion, of which about $1 billion is in offshore loans. The bank is currently in the process of discussing a valuation on the entire offshore book," said the third person cited above. Of the domestic loans, the bank may look to sell loans individually which belong to the infrastructure and telecom infrastructure segment, said this person.
The first person said that three funds are in talks to buy the domestic loans.
Standard Chartered’s decision to sell assets came amid its first annual loss since 1989 because of record loan impairments. The Asia-focused lender reported a pretax loss of $1.5 billion in 2015, down from profit of $4.2 billion a year earlier.
The bank reported a loss of $981 million from its India operations as the loan impairments, including restructured loans, across its India portfolio surged almost eightfold to $1.3 billion in 2015 from $171 million in 2014.
“While we don’t comment on individual clients, we are making good progress on executing our strategy, and we will provide an update to our investors in due course," Standard Chartered said in response to an emailed query.
An India spokesperson for SSG Capital when contacted on the phone declined to comment.
Emails sent on Friday afternoon to Cairn Energy and Essar Group went unanswered.
“The current process is aimed at arriving at a valuation. Depending on the valuation they receive, they will assess whether they can recover more internally," said another person who was part of some initial discussions but is no longer working on the deal. “The bank has already taken full provisions on these loans. They are not in a hurry to get rid of these."
Standard Chartered isn’t the only lender facing a surge in bad loans in India. Gross bad loans across India’s 39 listed banks rose to ₹ 4.38 trillion for quarter ended 31 December from ₹ 3.4 trillion at the end of September, according to data collated by Capitaline, a financial database.
Bad loans increased after the Reserve Bank of India asked banks to recognize bad assets and set aside money to cover the risk of default by March 2017.
A number of domestic banks too are looking for ways to resolve and recover bad loans.
“If the sale goes through, it’ll be a big eye opener for domestic banks, which have been struggling to close deals with stressed asset funds," said Gangwal.
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