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Global private equity firm Lone Star has partnered with Indian infrastructure financing firm IL&FS to jointly invest in stressed infrastructure projects in India, with a capital pool of $550 million. The investments could result in asset purchases of up to $2.5 billion.
The collaboration will see assistance provided to banks, sponsors and asset reconstruction companies to recycle capital, thus permitting reinvestment of capital in fresh projects.
“The India infrastructure sector is poised for a revival as the evolving framework is becoming more conducive for resolving stressed assets. The collaboration with Lone Star is strategic and presents the potential to attract sizeable foreign direct investment into India,” said IL&FS Chairman Ravi Parthasarathy.
The joint investment will help in resolving stressed infrastructure assets that are causing concern in the banking system and align closely with the objectives of the Centre and Reserve Bank of India.
Mark Newman, President, Asia-Pacific, Lone Star, said in a statement that the firm “looks forward to collaborating with IL&FS in reviving Indian infrastructure assets.”
Growing trend Over the last year, a number of other investors have been eyeing the stressed assets space in India. Canada’s Brookfield Asset Management Inc has put in about ₹7,000 crore into a joint venture with State Bank of India that will invest in distressed assets.
Billionaire Ajay Piramal-led Piramal Enterprises launched a $1 billion distressed asset investment platform in association with private equity fund Bain Capital Credit.
Caisse de Dépôt et Placement du Québec (CDPQ), the second-largest pension fund in Canada, has inked a long-term partnership with Edelweiss Financial Service to invest around ₹5,000 crore in stressed assets and specialised corporate credit in the country.
However, sale of bad loans to ARCs (asset reconstruction companies), which had gained considerable momentum four years ago, has halved over the past two years.
From about ₹50,000 crore each in 2013-14 and 2014-15, bad loans sold by banks to ARCs have fallen to ₹20,000 crore in 2015-16 and slipped further to ₹15,000 crore in 2016-17.
The RBI’s demand for a higher down-payment and the ARCs stretching themselves thin on capital have been the main reasons for the drop.
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