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Our Bureau

New Delhi, April 7 Assets Care Enterprise Ltd has become the first asset reconstruction company to purchase non-performing assets (NPAs) against debentures.

The shareholders of Assets Care Enterprise (ACE) on Monday approved the issuance of 3-year non-convertible debentures for Rs 40 crore to fund purchase of non-performing loans from banks and financial institutions.

ACE has been jointly promoted by IFCI, Punjab National Bank, LIC, TFCI and Bank of Baroda.

ACE had acquired a non-performing loan outright for cash from Punjab National Bank last month. The asset reconstruction company had paid 50 per cent of the consideration amount to the bank in cash. The balance 50 per cent is now to be paid in the form of ACE debentures.

According to Mr Jayant Dang, CEO of ACE, “This move marks a very significant and positive step for banks selling off their NPAs, as asset reconstruction companies (ARCs)can now include debentures as an option for the purchase consideration.

“We would explore the possibility of placing the debentures with other financial institutions and mutual funds, with the help of IFCI. If successful, this would be the first time that a distressed debt has been funded from the capital markets in India.”

ARCs have conventionally bought NPAs of banks by offering them security receipts. Security receipts are like mutual fund units which have a beneficial interest in the securitised pool of NPAs.

Unlike a debenture where the institution selling the NPAs gets a fixed amount, in the case of security receipts, the final realisation from the sale of the NPA is linked to the actual realised amount, after resolution of the NPA, which can take up to 3 years.

ACE is an asset reconstruction company licensed by the RBI under the SARFAESI Act that started operations last year, with the objective of acquiring NPAs from financial institutions and banks.

More Stories on : Non-Performing Assets | Corporate Bonds

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