ICICI Bank, Apollo India to start asset reconstruction company

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Mumbai: ICICI Bank Ltd, the country’s largest private sector bank, is expanding its presence in the distressed assets segment in India. The bank has signed a memorandum of understanding (MoU) with Apollo India Credit Opportunity Management Llc and AION Capital Management Ltd to launch an asset reconstruction company (ARC), it said in a press release on Monday.

“The MoU envisages the establishment of an asset reconstruction company, subject to regulatory approvals, and acquisition of debt exposures from lenders as well as equity stakes in companies,” said ICICI Bank

“The objective of the collaboration will be to streamline the operations of borrowers, facilitate deleveraging and arrange additional funding on a case-by-case basis. This initiative will seek to revitalize distressed assets and maximize their economic value,” it added.

ICICI Bank joins a number of other entities, including banks, which see an opportunity in turning around distressed assets. On 21 July State Bank of India and Brookfield Asset Management Inc. said that they will launch a joint venture to invest in stressed assets.

Ironically, the stressed assets are emerging from the balance sheets of some of these lenders itself. The 40 listed banks in the country had Rs.5.8 trillion in bad loans as of the end of the March quarter. ICICI Bank had gross non-performing assets (NPAs) of Rs.27,193.58 crore as of the end of the June quarter. SBI, which is yet to report June quarter earnings, had gross NPAs of Rs.98,173 crore at the end of the March quarter.

To be sure, these banks are required to operate at arms length with such joint ventures to avoid conflicts of interest.

This is not the first stressed asset venture for ICICI Bank.

The bank already has 13.26% stake in Asset Reconstruction Company of India Ltd (Arcil), the country’s oldest ARC.

AION Capital management (which is part of the MoU signed on Monday) has a strategic relationship with affiliates of Apollo and ICICI Bank and is manager of the “AION Fund” which invests in so-called special situations. These are typically companies which may be in the early stages of stress. AION has a corpus of $1 billion. 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.

There are a host of other companies queuing up to launch stressed asset funds and asset reconstruction companies, Mint reported on 9 May.

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.

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 was 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.