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C. Shivkumar

Bangalore , Sept. 11

IN a trend-setting deal, financial institutions have parcelled and sold a slew of non-performing assets (NPAs) from their portfolios as part of the ongoing balance sheet clean-up exercise.

The deal has been put through by Allegro Capital Advisory Services, a little known investment bank specialising in such transactions.

Mr Kunal Kashyap, Chairman and Director of Allegro, confirmed the deal though declining to identify the counter-parties in the transaction. But he said, "The asset buyers are all foreign financiers who specialise in such take-outs."

This is the first such transaction in the country and the amount is estimated at Rs 800 crore plus or the equivalent of about $175 million.

Banking sources, however, said among the institutions in the market to sell such assets are the beleaguered financial institutions Industrial Finance Corporation of India (IFCI) and the Unit Trust of India. Both these entities have been attempting to clear their respective balance sheets of high-cost liabilities by liquidating some stressed assets.

Besides, the sources said, UTI had already made it clear that it would prefer to exit from some of the consortium loans being taken up for corporate debt restructuring, as mandated by the Reserve Bank of India.

As for the asset buyers, among the companies scouting the domestic markets for taking out NPAs are the UK-based Halifax International and Channel Islands-located Abbey National Trust. Both these companies specialise in such take-outs and rehabilitation. These companies have been on the prowl within the country.

However, stressed asset financiers from abroad are seldom interested in small ticket buyouts. Most of their interest is focused on buyouts of assets upwards of $100 million. As such, this particular deal fitted their bill.

The discounting, in this case, was estimated to be close to 20 per cent, the sources said.

But selling such assets, despite the discount to face value, was a win-win situation for all the parties involved, Mr Kashyap explained. As far as the sellers are concerned, the stressed assets were fully provided for in the balance sheets. Consequently, any realisation from the asset sale would be booked as profits.

As far as the buyer is concerned, the purpose of the buyout is either refinancing the borrower or stripping the physical asset cover. The purpose of the current round NPA buyouts was for the former, though the new creditors get a charge of the underlying physical assets involved. This is unlike the case of outright external commercial borrowings, which are mostly in the nature of clean lending.

But the benefits for the new buyers also come from the interest flows, which are mostly fixed rate, in the region of about 12 per cent. Even after factoring the forward cover costs of 2 per cent, this would be a considerable spread over the London Interbank offered rate, which is currently at 1.5 per cent.

In this kind of a refinancing, even the borrower benefits by a drastic reduction in interest costs — 5 per cent. In fact, the high interest costs were one of the major factors which contributed to the asset stress.

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