Apollo Global Management looks to start ARC in India

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

Apollo isn’t the only global private equity fund trying to tap the Indian distressed assets market. Other 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 has been 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 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 rose to 14.5%, as of 31 December 2015, compared to 9.8% in March 2012, according to data from the Reserve Bank of India (RBI).

An ARC usually conducts due diligence on the loans, which 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. Among those who have applied for a licence is 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, the central bank has recently approved applications for two new ARCs.

Apollo globally acquires distressed assets and has been seeking to do distress asset acquisitions in India. In an attempt to tap the special situations market in the country, Apollo has a strategic alliance with 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 added 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.

Apart from focusing on stressed assets in India, in April, Apollo tied up with IFC to jointly invest $1 billion to buy distress assets in emerging economies, including India and Latin America.